Disadvantages of Credit Cards

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Disadvantages of Credit Cards

Mehmetcan Sevim

070090077

Faculty of Management

Faruk Çetiner

070090005

Faculty of Management

Ceylin Ulusel

020090306

Faculty of Architecture

English 201

Esra Sancak

December 28, 2011

Disadvantages of Credit Cards

Thesis: It is argued that credit cards are beneficial for individuals however they bring many

financial problems, trigger consuming and cause psychological conflicts in long-term

period.

I. Financial
A. Penalty rate
1. Late payments
2. Exceeding credit limit
B. Transaction fee
1. Interchange fee
2. Foreign transaction fee
I. Consumption
A. Trigger effects
1. Consumer culture
2. Compulsive buying
B. Spending addiction
1. Overspending
2. Indebtedness
III. Psychological
A. Behavior
1. Compulsive buying behavior
2. Money attitudes
B. Mental
1. Depression
2. Self Esteem
Finance can be defined as an art which leads to maximize return against risk. Dramatically increase at industrialization required more specific management and revealed many departments of companies such as marketing, sales, human resources. Finance provides pecuniary resources to these departments and also are used for cash flow management. When finance became more important in business life, finance industry emerged. Finance industry provides services related with the management of money. Banking service is the most ongoingness sector in the finance industry. It provides personal, commercial and mortgage loans which is related with credit system. Credit card which works to loan money monthly to consumers, is the most important component of credit system. People can buy goods, services without cash thanks to credit cards. It can be seen that credit card usage is so popular in banking system and most of the credit card holders have more than one credit card.  It is argued that credit cards are beneficial for individuals however they bring many financial problems, trigger consuming and cause psychological conflicts in long-term period.

First of all, credit cards bring difficulties for consumers related with financial problems. Credit cards can be so dangerous financial tool when it is used by unconscious costumers. Financial difficulties related with credit cards are also derived from lack of knowledge about credit card usage. The first significant financial problem for credit card users is penalty rate. Late payment is one of the reasons which gives rise to penalty rate. As Buttel explains, there is no difference between time periods when people paid their credit card payments late. Grace period changes between 20 and 31 days and even if card holders make their payments one day late, they are exposed penalty rates. Moreover, although payment is made before the new grace period, credit card holders could be charged penalty rates if they don’t pay their current bill(2003,para.8-11). This is why it is important that credit card holders should be careful about making their card payments on time. Furthermore, exceeding credit limit is another reason of penalty rate. Buttel states, according to the Consumer Action, credit card holders are exposed to pay high payments and over limit fees with be dragging customer limit down under the current balance by some credit card issuers (2003, para. 14). Clearly, some credit card issuers fox about credit card limits.

Apart from penalty rate, credit cards also result transaction fee. To begin with, credit card holders suffer from interchange fee. When customers choose to pay with credit card instead of cash, they usually exposed to pay higher prices related with interchange fee. Mitchell states, “Interchange fees not only enhance the profits of large banks at the expense of retailers, but ultimately...
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