Having good credit and keeping it that way is a difficult undertaking. Most individuals find themselves in a financial crunch from time to time and end up making late payments or even worse, missing payments altogether. When this happens, negative entries are made on the individual’s credit report making it extremely difficult to obtain future credit. When this happens, many individuals turn to high interest credit cards in order to address financial emergencies and rebuild a good credit rating. Here’s how it works:
An individual with less than perfect credit, or even bad credit, applies to a lender who specializes in high interest rate credit cards. The card is issued, usually with a lower credit limit which can sometimes be reduced even further by upfront fees. When a financial emergency occurs, the individual utilizes the available credit on the high interest credit card, just as they would on a regular credit card, either by making a purchase or by making cash advance through an ATM. The balance is then paid back either all at once at the end of the month or over a period of months. In most cases, borrowers choose to pay back the balance over time, lessening the impact to the monthly budget.
The pros to this type of borrowing include:
- 1. Ease of access to funds: High interest credit cards are relatively easy to obtain. The credit criteria that most lenders use is much more lax than those utilized by more traditional lenders. Applying for one of these cards can usually be accomplished online and approval can be gained in a matter of a few minutes to a few hours.
- 2. With the card in hand, funds are immediately available 7 days a week/24 hours a day for use, making this a great option for emergencies.
- 3. The longer you keep the card, the higher your credit limit will rise
While having a credit card can give you great flexibility and peace of mind, there are a few drawbacks to be aware of:
- 1. After applying for the card, it can take several weeks before the card arrives in the mail, making new accounts less desirable for immediate emergency concerns.
- 2. Carrying a balance on high interest credit cards is expensive. Interest accrues each and every month on the balance which increases the amount you have to pay back and significantly impacts the borrower’s monthly budget.
- 3. Missing payments on the card, making late payments, or overdrawing the card will further negatively impact the borrower’s credit, making obtaining future credit nearly impossible.
Having a high interest rate credit card can provide borrowers with a quick and easy source of additional funds that can be used in an emergency situation, providing peace of mind and financial stability. However, keeping one on hand is a huge responsibility. Frivolously using the card for unnecessary purchases needlessly adds stress to the monthly budget and eliminates the funds for use in emergencies. Care should be taken to utilize high interest cards in an appropriate manner to avoid creating additional financial situations.