Although using credit can have benefits if you do it wisely, there are also several downsides to using credit. Credit Reduces Your Financial Flexibility Using credit can bind you to a financial obligation to your lender. As such, taking on debt can reduce your financial freedom. In addition, the money that you spend each month on repaying your debt is money that you could have spent elsewhere on other opportunities. Using credit can your ability to save and invest for the long term. You can also think of credit as a promise to "work for the creditor" in the future to pay off your debt. Credit Can Tempt You to Spend More Money A major immediately that you would keep buying on credit before Interest Costs You Money of credit is that it can lead to overspending. This is often because credit cards make it easy to purchase items Interest is the price you pay for using credit; it is the money that you pay to the lender for borrowing the lender's money. When interest is stated in dollars, interest makes up part of the , which is the total dollar amount paid to use credit (including interest and other required charges or fees). The finance charge can be stated either in dollars or as an annual percentage rate (APR). The APR expresses the cost of credit on a basis as a percentage rate. For example, a single-payment, one-year loan for $10,000 with a finance charge of $2,100 would have an APR of % Knowing the APR allows you to make comparisons between credit options. For example, a loan with an APR of 18% will generally cost you than a loan with an APR of 16%, assuming the other fees and charges are the same. Generally you should try to obtain credit with the possible APR