Whether interest rates on credit cards for consumers with bad credit are too high is a matter of perspective. If used wisely, credit cards can serve as a useful tool to help rebuild a bad credit score. And if you've got bad credit, there are several far scarier options. 

Let's consider three financial traps that can involve much higher costs than credit cards.

Scary bad credit option#1: Payday loans
Payday loans are short-term unsecured loans that are usually for less than $1,000. They are to be repaid in full on the borrower's next pay day from postdated cheques supplied to the payday lender.

Payday lenders impose registration fees and many other expenses. Charges are tacked onto the maximum legal interest rate, which is 60 per cent under the Canadian criminal code. If you ask to refinance your postdated cheque for an extended period -- as many Canadians do -- even more fees apply.

Based on a 2007 insolvency study from the University of Manitoba, the average annualized rate for payday loans is 550 per cent, but can be as high as 650 per cent.

Tip: Avoid payday loans. They are the most expensive source of consumer credit outside of loan sharking.

Scary bad credit option#2: Cash advances
Cash advances mean withdrawals at bank branches or automated banking machines made with credit cards and also include credit card convenience cheques.

Accessing cash via your credit card is extremely costly. Interest charges and fees start instantly when you withdraw cash or deposit your convenience cheque. And Harrine Freeman, CEO of Freeman Enterprises credit repair and financial counseling service, points out that cash advance charges can exceed 500 per cent. Transaction fees alone range from at least 2 to 4 per cent of the advanced amount.

Because the current industry standard is to apply payments first to low-rate balances, high-interest cash advance charges can linger on your account statements for decades.

Tip: Only use a credit card to buy what you can pay for within the card's monthly billing cycle.

Scary bad credit option#3: Debt settlement services
You've probably seen the ‘avoid bankruptcy' and ‘debt consolidation' rescue ads in newspapers and on infomercials. Debt settlement refers to negotiating with your creditors; the goal is to repay only a fraction of the amount you owe.

But be careful. Some debt settlement agencies make misleading claims and engage in other fraudulent activities.

The fact is that debt settlement services come with no guarantees. Pat White, Executive Director of Credit Counselling Canada, warns, "It's important to understand that your creditors will not accept less than what you owe without carefully examining your overall financial situation." If you own a house and car, you may have to sell both to cover all or part of your debts.

Debt settlement companies can also impose an assortment of hefty upfront fees. Win or lose, you have to pay those expenses.

Tip: The Financial Consumer Agency of Canada (FCAC) recommends that you consult your creditors, bank and reputable financial professionals to find less risky credit solutions.

Responsible credit card use
Payday loans, credit card cash advances and debt settlement services may appear to be quick fixes for consumers in financial trouble. But, in reality, those scary financial scenarios accelerate the debt spiral, causing even more serious money problems.

The key to success in rebuilding your credit is to set a strict monthly budget and stick to it. You must be committed to reducing spending and regularly pay your bills on time.

At first, use your credit card only for emergencies until your budget allows you to prudently spend a little more. Although the road is long and it takes time, responsible spending and payment habits can rehabilitate bad credit into good credit.

Tip: The FCAC provides an online budget calculator that helps you track your income and expenses.