Unsecured Versus Secured Credit Cards

Every day, you are probably bombarded with unsolicited credit card offers.  Whether they say that you are preapproved or could be instantly approved, they seem like the easy answer to money problems.  The fact is that unsecured credit cards can cause you more financial trouble than what you began with.

The term “unsecured credit card” may seem unfamiliar, but it is actually the most common type of credit card.  Just like an unsecured loan, it is not based on any collateral.  Also like an unsecured loan, this means the interest rates can be high.  Credit cards are notorious for their high interest rates, reaching into the 20s.  In fact, this is the major problem with credit cards.  If you fail to pay your bill by the end of the month, you are charged high amounts of interest for what you have purchased using the card.  This is not even including the late fees credit card companies can charge you.

The main reason credit cards are generally viewed as a bad idea is because they can trick you into spending more money than you have.  Once they do and you have spent that money, then the fees and interest rates kick in on the things you could not really afford to begin with.

While these may seem like obvious drawbacks to having a credit card, you may not know that there is an alternative.  Just like you can get an unsecured loan or a secured loan you can apply for an unsecured credit card or a secured credit card.

There can be some advantages to this path over the unsecured one.  Depending on the program you choose, the interest rate may be lower.  Also, it could fix the problem of thinking you have more money than you think you do, as there are some programs that establish your credit line as being equal to your initial deposit.  On the other hand, some allow for a credit line slightly higher than your deposit which reintroduces the problem.  This method does not eliminate the fees.  In fact, some people have run into the problem that their deposit was eaten up by fees before they could even use the card.  Just like with unsecured cards, you should shop around for the best rates and you should always read the fine print.

In general, credit cards can be a bad idea.  If you are still determined to get one, you should look into all of your options and research your choices before making a decision.

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