The world is witnessing a significant transition under the COVID-19 pandemic with people resetting the agenda of their lives. Americans are becoming overcautious in everything that deals with credit.
Credit cards are being blamed for the ‘tsunami of debts’ it has created as the pandemic has exhausted people’s money and that has blown up the scale of the damage. Cardholders are struggling to pay off the card due to increasing unemployment. According to the Bureau of Labor Statistics, unemployment rates spiked in the first months of the pandemic and remained at just over 10% in July.
The obvious question in your mind would be is it fine to have a credit card? The answer is your credit is under huge risk and staying away from a new card is sensible.
Here are a few cons to look for and avoid credit cards at any cost.
1. The Spending Syndrome
People who love spending are easy targets for credit cards and that is enough to get entangled in the bad debts. The trick lies in making you feel easy while shopping and consumers get carried away without looking at the larger picture which is the repayments that have to be done within the said time. Selling points for card issuers are the sign-up bonus or rewards for customers that in turn encourage them to overspend.
Earning rewards or points is a marketing stunt and cardholders should stay away from it as much as possible. It does not add any value to you as a customer.
2. Fluctuating Credit Scores
A lender can affect your credit scores each time you apply for credit. Inquiries are done on your credit report before approving one and this can reduce your credit score significantly creating a negative impact. Missed payments that are common during an economic crisis or insufficient flow of money can hamper your credit score.
A disaster is one that forces you to open multiple credit card accounts when you have enough financial obligations.
3. Sky High-Interest Rates
Even though credit card interest rates have come down in 2020, it hardly matters because they are relatively high over other forms like personal, auto loans, and home equity loans. Non-payment of your bill in full each month could result in racking up expensive bad debts.
4. Approvals Rejected
Card issuers owing to the COVID-19 crisis are moving back as they are completely aware of the experience when the recession hit last time in 2008. It is expected that they would want to avoid potentially risky customer debts. People are running short of funds and to add to their concerns job losses are on the rise. Keeping in mind the current situation cardholders are unable to enjoy balance transfer offers including the 0% APR from card issuers.
Your excellent credit scores are of no use to get card approvals, higher credit limits, or the promotional periods that you were hoping for.
There is no stopping the spread of the coronavirus as of now and the recession period is going to prolong for a longer time. Credit cards have always been criticized for higher interest rates and under the present situation, it can be dangerous. However, the debts accumulated by existing cardholders need an alternative plan to close it and keep it within your limits. The pandemic looks perfect to create a new opportunity in tackling your financial woes. Drop the idea if you’re applying for one instead make use of payment apps that offer interest-free funds.
By Karthick V.