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Line 4: − ==Costs and dangers==+ − Credit cards have costs and dangers which it is important for cardholders to understand. − ===Costs=== + Line 13:
Line 12: − ===Dangers===+
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*cardholders are protected against cheating by sellers.
*cardholders are protected against cheating by sellers.
But in exchange for this convenience, they have costs and dangers.
==Costs==
*A purchase made on a credit card is a loan, and interest (called a "finance charge") is charged. The interest rate is very high; rates of 18% to 24% per year are not unusual. This is much higher than the rate on most consumer loans, like auto loans or mortgages. Because the interest rate is so high, the best "investment" most consumers can make is to pay off their credit card balances.
*A purchase made on a credit card is a loan, and interest (called a "finance charge") is charged. The interest rate is very high; rates of 18% to 24% per year are not unusual. This is much higher than the rate on most consumer loans, like auto loans or mortgages. Because the interest rate is so high, the best "investment" most consumers can make is to pay off their credit card balances.
*Increasingly, credit cards charge "late fees" that can be very high. A consumer with a low balance who sends a payment in late may get hit with a $25 or $50 "late fee."
*Increasingly, credit cards charge "late fees" that can be very high. A consumer with a low balance who sends a payment in late may get hit with a $25 or $50 "late fee."
==Dangers==
Credit cards are lucrative for banks because of the high interest rates. Therefore banks do not ''want'' consumers to pay off their balances. Credit card statements will show a "minimum payment" which must be met, but the minimum payment is very small. A consumer who takes the lazy way and only pays the "minimum payment" will run an increasing balance and run into debt.
Credit cards are lucrative for banks because of the high interest rates. Therefore banks do not ''want'' consumers to pay off their balances. Credit card statements will show a "minimum payment" which must be met, but the minimum payment is very small. A consumer who takes the lazy way and only pays the "minimum payment" will run an increasing balance and run into debt.