The only people who don’t worry about money are the ones who have it, so unless you were born into a family with generations of wealth, then your financial future is probably always on your mind. A major part of your financial future is your credit.
Society today is becoming increasingly dependent on using credit to make purchases and life changing decisions, such as investing into a personal business or buying a home. When looking for a job, even employers may conduct a credit check as part of their hiring process. [1]
Building good credit is essential, but where does one start? You may have heard that getting a credit card is a great way to start building credit. Before you ruin your life and any chance you have at a long term, peace of mind in this life, consider these pros and cons of using credit cards.
CONS
CON #1: Everyone Pays! – You are not contributing to the world!
Credit card companies have already assumed you are not going to pay the credit card. They have a thing called a “bad debt reserve” on their financials. A bad debt reserve is defined as “An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans.” [2]
What this means for a credit card company is an account to cover the long term losses they may get from issuing the credit card. Where does this money for the bad debt reserve come from? Well from you of course, but not from your finance fees. It is built into the cost of products or services as an upcharge that everyone pays.
Take gasoline for example. Have you ever gone to a gas station that offers a lower price per gallon of gas if you pay with cash? The reason gas per gallon is higher when you pay by credit card or debit is because of the upcharge for that gas station to use the electronic money transfer services of the major credit card companies. [3]
CON #2 Impulsive Overspending
That little rectangle of plastic does not mean cash, but you may fool yourself into thinking that it does. If you come across an item you just have to have but don’t have the money for it, you may think that if you just charge it on the credit card you can pay it off later. However, if you don’t limit yourself and fully comprehend your budget, you’ll spend more than you can handle which can result you falling into debt. People actually tend to spend more with credit cards than they do with cash. [4]
CON #3 Another Way to Threaten Your Finances
A credit card can land in the wrong hands, and they don’t even need the actual card. Every time you use your card, such as making a purchase online or at a store, there is a chance your information can be stolen which can result in massive amounts of purchases made in your name. Just recently, the supermarket chain Target was in the news with a statement that about as many as 40 million credit and debit cards may have been compromised to those who made purchases in their stores between November 27 and December 15 last year. [5]
CON #4 Late Fees & Interest Rates
Obvious draw backs of using a credit card are the late fees and interest rates. If you miss a payment, you’ll have to pay a late fee of around $25, which can add up if you’re a repeat offender. A high interest rate can drag you into debt if you don’t pay your balance off quickly. You do have the option of getting a credit card with an introductory 0% APR to give you time to pay off purchases, but after that period is up, each month there is a charge on your credit card’s balance via the interest rate.
PROS
PRO #1 Purchasing Power
There are many things that are hard to purchase unless you have a credit card. A credit card is a major factor when it comes to renting a car. There is also the convenience of paying bills online, making online purchases, even the apps on smart phones and tablets are typically bought with a credit card. Are you planning to move soon? Because those moving trucks one can rent usually require a credit card.
PRO #2 Short-Term Emergency Financial Needs Can Be Solved with a Swipe.
If you manage to pay off the card and always keep regular payments, you can count on the credit card company raising your credit limit. This may come in handy when the time comes when you need emergency money to take care of a financial crisis.
PRO #3 Build Your Credit
A credit card can be thought of a small loan for each purchase, and if you have been paying your credit card off every month, your credit score/rating can increase. With good credit you can get a loan from a bank. You may even get a lower interest rate on a car loan as well with good credit. Want a house? Having good credit is important for one to qualify to get a mortgage. Suddenly, loans come easy and money flows with little issues on approval. All because of credit cards and the responsible use of them.
PRO #4 Car Title Loans and Business Loans Compete for your Business
Some people who need a few thousand dollars today or by tomorrow, can’t get a loan that fast from a bank, even with great credit. You can cover your expenses with your credit cards, and even if you over extended yourself; you can pay them off by consolidating your debt with a car title loan at a competitive rate. Without credit cards, and you will pay sometimes double in interest rates at some lenders when trying to get a personal loan. Most people go to Max Cash Title Loans for a referral to get a car title loan from a reputable lender.
Have you thought of starting your own business? Your well managed credit cards just helped your credit file get you into the land of over $25,000 and higher loans with OnDeck, and the good people there can get you funds in less than a week. All this from getting, as well as the responsible managing, of your credit cards.
Credit cards have two sides, on one hand they can pave the way to many great experiences and really put a little inner peace in your life during struggling times, but if used incorrectly, they can lead you down a dark road full of debt and stress. Think about it, and choose wisely.
By Fred Winchar and Fred Winchar Social
Sources:
[1] LaToya Irby, Why Good Credit Matters
[2] Definition of ‘Bad Debt Reserve’
[3] James Joyner, Gas Stations Charging More for Credit Card Users?
[4] Scott Rick, Why We Overspend With Credit
[5] Jared Newman, The Target Credit Card Breach: What You Should Know
