Anytime you sift through your mail, there is a good chance you'll come across a credit card offer or two. Credit card companies constantly try to entice students, recent graduates and young professionals to sign up for new accounts. While credit cards can provide a convenient way to pay for day-to-day purchases, they often involve unfavorable terms that are very profitable for credit card companies and bad for the individuals who use the cards.
Ease of Accumulating Debt
Perhaps the most dangerous aspect of credit cards is that they make it very easy to accumulate debt. You can use credit cards online and at almost any restaurant or retailer. This makes it tempting to go on shopping sprees and ignore the true cost of buying things until you start getting big credit card bills in the mail. In addition, credit card companies often set low minimum payment requirements each billing cycle that don't put much of a dent in the amount you owe. Even if you always a make your minimum payments, if you use a credit card while you have a balance, you accumulate debt.
High Interest Rates
Interest rates are the cost of borrowing money. When a lender gives you money, you have to pay back the original sum plus an extra amount -- your outstanding debt multiplied by an interest rate. Credit cards are notorious for carrying high interest rates. Many cards carry rates well over 10 percent, which make it expensive to carry a balance. The high interest rates on credit cards combined with the ease of spending create a slippery slope: Once you build up a balance, it can be difficult to climb back out of debt because you have to pay a lot each month just to account for the interest you owe.
Costly Cash Withdrawals
You can use credit cards to take money from an ATM, but cash advances with credit cards are much more expensive than ATM withdrawals with debit cards. The Federal Reserve states that cash advances often incur flat fees equal to a percentage of the amount withdrawn; when you get money from an ATM, you could lose 3 or 4 percent right off the top. In addition, credit card companies often charge higher interest rates on cash advances.
Credit card companies can impose a host of other fees and penalties that can push up the cost of owning a credit card. Some companies charge annual account fees that you have to pay even if you always pay your balances in full each month. Other common fees include late-payment fees, over-the-limit fees and foreign transaction fees.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.