Using a credit card isn’t an evil thing, if used wisely. However, if you let your usage get out of hand, you may spend years of your hard earned money trying to repair all the damage done to your credit score. Take it from me; this is not a route you want to travel. To use credit properly, it’s best to understand its advantages and disadvantages.
As a young college student, I got caught in the credit card trap. I spent money I never had and paid a hefty price. Over time, I learned from my mistakes by recognizing the pros and cons of using credit cards. Let’s take a look at some of the pros of using a credit card.
Helps Establish Good Credit
Credit cards help to build a credit history. By paying your bills on time and not maxing out your available credit, other creditors tend to view you as a favorable or low-risk consumer. The more you use credit and repay responsibly, the more credit will be offered to you.
Great for Emergencies
Life is unpredictable and this is where a credit card comes in handy the most. Use credit to take care of surprise financial burdens like car repair or an unexpected trip to the dentist.
Make Payments over Time
Another benefit of credit is being able to pay for things over time. Credit allows you to make smaller payments opposed to paying one lump sum. You may pay a bit more for this convenience, but it keeps you from over extending your finances.
Be cautious when using credit. Here are some of the detrimental effects of misusing credit.
High Interest Rates
For the convenience of paying over time, the company issuing the credit charges interest. Low interest rates are reserved for consumers with good credit history. Those who have yet to establish a credit history or have a poor credit history can see interest rates as high as 27 percent. Carrying balances from month to month and making late payments causes your debt to compound due to the high interest rate. This can lead to a disastrous financial situation.
And that disastrous situation results in a low credit score and a struggle to get issued credit in the future. I was in this position. Credit companies saw me as a high risk consumer due to missed payments and late payments. I had to use practically every penny I earned to pay down my debt in addition to taking care of life’s bare necessities. While it’s easy to accumulate the debt, it takes years to repair the damage it does to your credit score.
So, the moral of the story is to use credit wisely. Don’t take it for granted and use it more than you need. Make your payments on time and always keep an eye on your billing statements to make sure all the information is accurate. Credit can potentially be an enemy, but it makes a better friend.