The credit cards They're one of those topics that divide opinions. On the one hand, they offer you the possibility of financing your purchases, obtaining discounts, and earning points for redemptions. On the other hand, they can become a debt trap with extremely high interest rates if you don't know how to manage them well. Are they good or bad? The answer isn't that simple, because it depends on how you use them and how you understand key concepts, such as: total financial cost (TFC).
Total Financial Cost (TFC): What is it and why does it matter?
Let's start with the most important thing: the total financial cost (TFC)This indicator measures the real cost of financing with the card. It includes not only interest, but also fees, insurance, and other associated expenses. In other words, the CFT reflects the true cost of debt.
When you pay by credit card and decide to finance your purchase in installments, you're not just paying the value of the product. You're also paying the financing cost, which can vary depending on the card, the bank, and market conditions. The higher the CFT, the more expensive it is to finance yourself.
It's essential to check the APR before deciding to pay for something in installments. It's very easy to fall into the trap of "12 interest-free installments" that actually hide additional costs. "Interest-free" can be a misleading term if it doesn't include all the expenses that add up to the final balance.
How is the CFT calculated?
He CFT It is expressed as an annual percentage and is calculated by adding the cost of interest, insurance, administrative fees, and any other fees charged. Let's look at a simple example to understand it:
- You buy a refrigerator for $100,000 in 12 installments.
- The monthly interest is 3%.
- There is life insurance on the balance of the debt, which represents 0.5% per month.
Adding these costs together, the CFT could reach 50% or more in a year. That means you'll end up paying significantly more than the original $100,000.
Advantages of Credit Cards
Despite the costs, credit cards also have their advantages. advantages, especially if used strategically:
- Financing in emergency situationsIf you have an unexpected expense and don't have cash available, a credit card can be a useful tool to get you out of trouble.
- Rewards programsMany cards offer points, miles, or cashback for purchases you make. These benefits can be significant if you know how to take advantage of them.
- Purchases in installments: Sometimes, you can actually access interest-free installments, which makes it easier to purchase expensive products without paying extra.
- Better credit historyUsing your credit card responsibly can improve your credit history and help you access loans with better terms in the future.
Disadvantages of Credit Cards
Of course there are also disadvantages, and some are quite serious if you don't control your expenses:
- High InterestsCredit card interest rates are typically much higher than other personal loans. If you don't pay your balance in full each month, the cost of your debt can skyrocket.
- Late feesIf you're late paying, additional charges quickly add up, making the debt even harder to pay off.
- Commissions and hidden costsThere are many fees that can be added to card usage. The cost of life insurance on the balance, the renewal fee, or even the cost of issuing a new card are some examples.
- Risk of over-indebtedness: Because your credit limit can be high, it's easy to be tempted to spend more than you can afford. This is where cards become a dangerous trap.
Strategies for Using Credit Cards Smartly
If you want to take advantage of the benefits without falling into the typical problems, here are some strategies that may help you:
- Pay the full balance every month: If you pay off your full statement, you avoid paying interest. Using your credit card as an extension of your wallet, not a loan, is key.
- Avoid financing small purchases: It doesn't make sense to pay fees for things you could pay for in cash or with a debit card. The small amounts, when added together, end up creating a considerable debt balance.
- Always check the CFT before financingAs we've seen, the APR is the best way to know how much you'll pay in total. If that's not convenient for you, it's better to wait and save up to make the purchase in cash.
- Take advantage of real promotions and interest-free installmentsIf you find a promotion that is truly “interest-free” and you need the product, it may be a good opportunity to finance it at no extra cost.
Credit Cards in Argentina: A Particular Reality
In ArgentinaCredit cards have their peculiarities. With high inflation, many people turn to cards to finance everyday expenses and beat rising prices. However, this also leads to overuse of payments and the risk of accumulating debt in an unpredictable economy.
Furthermore, in our country, the Now 12 plans either Now 18 They have gained popularity as tools for financing purchases at more affordable rates. While these plans can be helpful, it's essential to keep in mind that conditions can change quickly, and what's convenient today may not be tomorrow.
Are Credit Cards Good or Bad?
The million-dollar question: Are they good or bad? Actually, The credit card is neither good nor bad in itself; is a financial tool, and as such, its usefulness depends on how you use it.
- If you are one of those people who pays the total balance every month, take advantage of the promotions and avoid unnecessary expenses, cards can be very useful.
- But if you usually finance all your purchases, pay the minimum on your bill and have no control over your budget, Cards can become a source of financial stress.
How to Improve Your Relationship with Your Credit Card?
To avoid credit cards becoming a headache, it is important to follow certain recommendations:
- Keep a strict control of your expensesWrite down all your card purchases and review the summary before the closing date. This way, you'll know exactly how much you'll have to pay and won't be surprised.
- Set a monthly spending limitEven if your credit limit is high, set a personal limit based on your income and means. That way, you'll avoid overspending.
- Use a backup cardYou can have one card with a low limit for everyday expenses and another for large purchases or emergencies. This helps you maintain better control.
- Do not abuse the minimum paymentAlthough it's tempting to pay only the minimum, avoid doing so. The outstanding balance keeps accumulating, and you'll end up drowning in interest.
Understand the Fine Print of Promotions
An important point is not to get carried away by promotions without reading the fine print. Often, offers that seem irresistible have certain hidden conditions.
For example, an “interest-free installment” may be conditional on the purchase of insurance or the obligation to spend a minimum amount. Make sure you understand all terms before purchasing.
Conclusion
Credit cards can be a useful tool, as long as know how to use them intelligentlyThe secret is in understanding the total financial cost and using them strategically. Otherwise, they can become a source of problems.
In an inflationary context like the Argentine one, it is important to take advantage of the benefits of credit cards, such as installment plans and points programs, but without losing sight of the associated costs. If you apply the strategies we discussed, you can make the most of your credit cards without putting your financial health at risk.
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