- Overspending is a potential negative effect that can result from using credit cards. When you carry cash or checks, you can only spend as much money as you carry with you or up to the amount that you have in your checking account. With credit cards, you spend money that is not yours. Since credit cards are widely accepted both online and at physical businesses, it is easy to make impulsive purchases with credit cards that can lead to high debt balances.
- If you accumulate a credit card balance, you will owe interest on the debt. The interest rates on credit cards tend to be much higher than other types of debts like mortgages, student loans and car loans. This means the balance you have on a credit card is much more costly than other types of debt and it will serve to diminish the amount of wealth you can build over time. Paying off credit cards as quickly as possible will reduce the impact of high interest rates.
- Your credit score is a number based on your credit history that lenders use to help determine whether to give you loans and what interest rate to charge on loans. Credit cards can have negative effects on your credit score. If you miss credit card payments, your credit score will typically go down and if you carry a high balance on a credit card, it can have a negative impact on your credit score. Opening new credit accounts can also have a negative impact on your credit score. High debt levels can lead to bankruptcy, which has a severe negative effect in credit scores that can linger for many years.
- High levels of debt can lead to various negative psychological effects. According to the Massachusetts Securities Division, carrying debt can lead to problems such as stress, depression, insomnia, emotional outbursts and in some cases, suicide. Among young adults and college students, debt problems may negatively impact study habits and academic performance.
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