In case you haven't noticed, credit cards are replacing cash-slowly but surely. With close to 2-billion major cards in circulation and nearly $3,000 (billion) in credit card purchases per year, it's easy to see how paying with credit may be one of the fastest-growing financial trends in the world.<br><br>But if you're one of the 173 million American's that regularly make purchases with credit cards-or if you're thinking of becoming one-maybe you should think about the many drawbacks of credit card usage. It might just change your mind about paying with plastic...<br><br>High Interest Rates<br><br>No matter how you dice it, you're always paying too much when you use a credit. With average interest rates nearing 18% and high rates in the low 30's, it just doesn't seem sensible to make purchases with credit cards. In fact, the average credit card user pays hundreds to thousands of dollars in interest rates each year. During a time when a penny saved is a penny earned, maybe using a credit card isn't such a great idea.<br><br>Penalties<br><br>If you've ever made a late payment, gone over you limit or bounced a check to pay your bill, then you're probably familiar with credit card penalties. Penalties range from interest rate increases and lowered limits to fees of up to $40. With penalties rates this high, it's easy for consumers to sink into debt. One late pay could trigger a default interest rate, lowered limit and a stiff late fee all in one, marking the beginning of potential debt problems and making it harder than ever to stay on top of your finances.<br><br>Promotional Offers<br><br>Most of us have been confronted with credit card offers that promise big savings. But in reality, most of these promotions carry a hefty price. The Target REDCard, for example, promises 10% in savings-but at an interest rate of 22.99%. In reality, the REDCard promotion costs you much more than if you would have paid in cash. Best Buy offers zero percent interest on purchases made with their credit card, but if the item is not paid in full by the end of the promotion period you're looking at interest rates as high as 24.99%. Of course there are reward and rebate benefits offered by most credit card issuers, but it costs you an arm and a leg in spending and interest fees to finally cash in on the benefits. Many people have a tendency to spend more than they can afford to get a 5% rebate or a free plane ticket, and in the end, it's usually not worth it.<br><br>Overspending<br><br>There's a difference between borrowing and overspending. Borrowing with a credit card means you're spending money you don't quite have but you're planning on paying it back. When you overspend with a credit card, it means you're borrowing money you're not even sure if you can pay back at all. When you pay with a credit card, you're never seeing, or "feeling" the money leave your hands. And that makes it easy to lose track of how much you're spending, how close to your limit you're getting, and how much of your debt can you safely pay off. Using cash helps to eliminate this kind of risk because you're dealing with actual, physical money. It's what you really have to work with and you'll never spend more than you have because it just can't be done.<br><br>Risky Contracts<br><br>Even if you read the fine print, you're bound to miss at least one important detail in your contract. And it's usually a clause that carries the potential to cost you a lot of money. The truth most of these contracts are loaded with penalties and clauses that are designed to profit the lenders. One of the most damaging clauses is the Universal Default Clause. With the Universal Default Clause, lenders reserve the right to lower your credit limit and/or raise your interest rate at anytime for any reason if they deem you a potential risk. Being a potential risk may be the result of a late payment, going over your limit or having too high of a balance. The biggest problem with this clause is that an issuer can take action against you if you make a late pay or go over your limit with anyone-even if you've always paid in good faith with that particular lender. If they see you're having problems with any one of your bills at anytime, you're considered a risk, and they'll probably nail you for it.<br><br>Your Credit Profile<br><br>Most of us know how having credit cards can help build and maintain good credit, making it easy to get good loan rates and other privileges. But the downside of credit is that if you handle it irresponsibly at any time, the results could be devastating. Over 30 million Americans a year are regularly making late payments, and close to 20 million people aren't paying some of their bills at all. It's unfortunate for people in this situation because ruined credit not only makes it hard for you to get a loan, but many companies won't extend any services to you at all-utility companies, banks, and property managers, to name a few. In addition to loan and service problems, having bad credit is now making it more difficult to find employment because employers are checking your background to see how responsible you are.<br><br>So Be Careful...<br><br>With the increase in credit card usage comes an increased number of people who are struggling with debt as a result of high interest rates, penalties and simple overspending. All of these hardships and risks can be eliminated by using cash or by using credit cards responsibly and only when necessary.<br><br>If you are going to use credit cards, make sure you read your contracts carefully, be mindful of your accumulated interest obligations, and always keep an eye on your budget. If you don't, you may just learn the hard way about the pitfalls of credit cards.