So is having a credit card really that bad? Many people think so and it’s no great wonder. One of the dangers of owning a credit card is that it’s too darn easy to get into trouble with them. We open charge accounts with the idea that it’s “just for emergencies” and before we know it, the card is being used to pay for a family trip to Disneyland.
Having had credit cards for nearly 40 years, I’ve had my share of ups and downs when it came managing credit card debt. Here’s what I see as the advantages and disadvantages (the “pros and cons”) of having a credit card.
Con #1 of course is the interest. Credit cards historically charge a much higher interest rate than other types of bank loans which is why they are so hard to pay off. Never charging more than you can pay off in a month or two will keep you out of trouble.
Con #2 are the unwelcome fees. Unlike a check or cash which which costs next to nothing to use, credit cards come with fees and penalties. You will be charged fees for a late payment, fees for going over your balance, balance transfer fees, and third party fees for using your credit card to pay a bill. Some credit card companies will even charge an annual membership fee.
Con #3is the increased risk of fraud. The security breach that happened at Target last winter only affected people who had used credit cards or debit cards.
Con #4 is the difficulty in tracking how much you’ve spent in a day of shopping. Unlike a wad of cash which grows smaller as you spend it, there’s no visual cue to keep your spending in check.
Those are the disadvantages of credit card debt. It’s the advantages however that keep me reaching for the credit cards year after year.
Pro #1. It’s easy, it’s convenient, it gives us access to cash immediately instead of having to apply for a loan.
Pro #2 is the limited liability. Each time we make a purchase over the internet or the phone, we put our personal accounts at risk when using a debit card or bank account number. No so with a credit card. In case the number is stolen, our losses are limited to $50 and the bank will write off the rest.
Pro #3. For those who travel frequently, you must have a credit card to rent a car. You also need a card to book on-line reservations for planes and hotel accommodations especially if booking through a discount travel site like Expedia.
Pro #4 are the reward points. We used our credit card exclusively during a recent vacation and earned nearly $700 in free gas cards. Other people use points to earn discounted air fare or gift cards.
Pro #5 is the consolidated record keeping for tax time. The IRS accepts credit card statements as proof of expenses which is super convenient.
Pro #6. If you feel like you’ve been scammed by a business or were sold a defective product that the store won’t let you return, some credit card companies will step in and handle the dispute for you.
Pro #7 A credit card can help out in an emergency which is especially important if you have a small business or own rental properties. Immediate access to funds lets you deal with the emergency now so that your businesses can function without interruption.
More by this contributor:
How we are rebuilding our emergency savings account
Three ways I’m avoiding credit card interest
DIY ways to consolidate your credit card debt