Credit Cards - Fallacies versus Facts!

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Ease of use and portability.

These are only a few benefits of using credit cards amongst all the others. However, as many benefits as these plastic cards offer, they can also turn into financial trouble when you don’t manage your credit card spending. Hence, it is important to be careful about all the responsibilities that come complimentary with a credit card.

In order to be a responsible user, you need to know all the facts related to these smart plastic wonders and stay away from all the myths. So, to keep you well-informed, we have listed a few common misconceptions about credit cards and the facts behind them. 

Fallacy #1: A credit card means free money

Fact: The truth is that credit card in no way is free money, but a lot of people treat it that way. Being a credit card user, you need to ensure that you hold some money in the form of cash or in your bank accounts before you start thinking that a certain thing is affordable for you.

Those dresses, shoes, perfumes, video games, etc. are not worthy of the debt that follows with them when you buy them using your credit card. Such tiny-looking debts may cost you a lot of dirhams because of the interest charged on them.

You can count this amongst the worst misconception because if you believe it, you will end up under a pile of debts in the near future.

In case you are struggling in deciding if you can afford something or not, following are the things that may help-

  • Don’t shop impulsively, think before shopping, especially for expensive things
  • Analyze whether you really need it or not
  • Calculate the amount of time you will have to work for in order to afford your purchase
  • Remember the times you have regretted making such purchases

If you sit and do the 4 things mentioned above, you may come to the realization that you cannot practically afford such purchases. 

Fallacy #2: Using a credit card means paying interest always

Fact: It may sound surprising, but there are many people out there who don’t clearly know how to use credit cards. A lot of people think that using a credit card would mean that they have to keep paying high-interest amount always, even when they pay their monthly bills in full.

This is NOT TRUE!

You can make use of your credit card all the time without spending a single penny towards late charges, interests, or any other such fees and charges.

What you need to keep in mind is that you pay your balance in full before the due date arrives. This is not amongst those misconceptions that can harm you financially; however, having knowledge of how these cards really function may be helpful in the long-run. 

Fallacy #3: You need to carry at least some balance on your card Always!

Fact: This is a myth that you must have heard a lot. You may come across many people who believe that the only way of improving your credit report is carrying a balance on your credit card and paying the rate of interest.

This is the thing you need to ignore because interest charges on a credit card can turn out to be expensive. Here is a list of other such bits of advice that you need to IGNORE.

  • Always carry at a 5-30% balance on your credit card
  • Do not pay your entire card balance together, in such a case, the provider or bank will cancel the card automatically and delete the account history as well.

As such, there is no limit to such misconceptions. But, if you want to make your credit Score better then there are many ways, and spending your money on paying interests is not amongst them.

For improving your credit rating, you can pay off your card balance in full every month before interest and other charges are levied on it.

Here are some other ways of increasing your credit rating.

  1. Check your credit report on a regular basis.
  2. Ensure that you always pay your accounts and bills timely. Making late payments will lead to an addition of late payment charges on your balance.
  3. Make your payment before your card balance gets reported.
  4. Keep your card accounts open (if it seems sensible), for lengthening the credit history. But if keeping these accounts open will add up to your debts or if you do not find the annual charges to be worthy, then closing them would be a better option.
  5. Request your provider to increase your credit limit, but do not spend equal to that new limit.
  6. Try to keep your card balance low. 

Fallacy #4: Only paying the minimum due amount every month is enough

Fact: This one is also amongst the most common myths about credit cards. While some people make this mistake because they believe in this misconception, some simply don’t have access to enough funds for paying their card balance in full every month.

There are some people who believe that they need to make payment of the minimum amount only because doing so will save them from interest charges.

You need to understand what exactly “minimum amount due” refers to and what are the consequences of paying only that amount.

The following points will help you understand what minimum payments actually are.

  • Basically, this amount is the smallest amount your credit card provider will allow you to pay monthly.
  • Although these payments will keep you in a good position, they may have a negative impact on your credit rating.
  • It may also lead you to pay even more in the future due to the interest charged on your balance.

Always try to make payment of an amount above the minimum due amount. Failing to do so, you will have to bear interest charged that might add up to your credit card debt by a considerable amount every month as well as year. 

Fallacy #5: Reward credit cards are nothing but a scam

Fact: This is again one of the misconceptions that you will get to hear quite often, especially while talking about earning reward points or travel benefits.

Though reward cards have become extremely popular these days, there are many people who consider them to be nothing more than a scam.

The fact is entirely opposite. Credit card providers do offer amazing rewards on these cards and one of the most common types of rewards being travel rewards.

With these rewards on your credit card, you can enjoy very affordable vacations. You can also receive free cash back, flights at economical prices, and much more.

The reason why people do not believe in this type of credit cards is that they feel why the provider would be so generous and kind to give you exclusive rewards for no reason. The truth is that the credit card providers or companies do not just give away cash back and reward points, because they are generous. Then what exactly is the catch here?

These companies offer such cash back, bonuses, and rewards to make sure that you become their loyal and long-term customer. The more the customers they have, the more amount of money they will be able to make. The following are only some of the ways in which they make money.

  • Annual fees
  • Taking a part of every transaction you make with a credit card on the stores
  • Rate of interest charged 

Fallacy #6: Credit Cards are used by only those people who have money problems

Fact: This is a weird misconception about these plastic cards. There are so many people who use credit cards and have no money problems as such. But at the same time, there are so many people who think that sensible people do not carry credit cards. Those having one are probably stuck with tens of thousands of dirhams of credit card debt, which can lead to ruining their lives.

Instead of believing all of this, it is important for you to understand that when you use your credit card responsibly, you will never have to face any debts. Make your payments on time, clear your bills on or before the due date, and enjoy the benefits this plastic wonder has to offer.

Moreover, it is not just people with money problems who buy these cards, any person who prefers to use plastic money over cash would opt for it. 

How to get over these Credit Card Myths?

The best way to ensure that you do not fall for any of these fallacies is to know about credit cards in detail and learn how they work.

Before applying for a credit card, you must understand the common terms related to it. Not having proper knowledge of these terms can become a reason for falling into debts.

Make sure that you know about rates of interest, minimum payment, annual fees and other charges, the impact of your credit score, term and conditions of rewards and offers, and all the other things.

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Although these things are applicable to most of the credit cards, not every card is the same as the other. Considering that can also be a fallacy that many people end up believing. Not all rates of interest, terms, and fees remain the same. Do your research on every card separately.

We understand that researching and studying about the basic principles of credit cards may seem like a lot of work. However, if you fail to understand how they actually work, you may end up under a huge pile of debt or further under the pile of debt that has been crushing you already.

A credit card can work the best for you if you are responsible and careful while using it. But, if you are not, they have the capability of wrecking your finances as well as your future. Stay aware of these myths and their facts, be a responsible credit cardholder, and enjoy the advantages of these little plastic wonders.

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