As with anything, there are advantages and disadvantages to using credit cards. First and foremost, it’s important to know that credit card companies do a great job at glamorizing credit cards. They want consumers to apply for their cards, because it’s more money in their pockets at the end of the day. This guide will help you look beyond the glamour and weigh the pros and cons of having a credit card.
Pros To Using Credit Cards
1.) Immediate Access – The first and most obvious advantage to having a credit card is the immediate access to money. This can be really helpful when you are in a tight spot or when an emergency occurs. Having a credit card can help you buy that new pair of tires you suddenly need. It comes in handy having a card, because it gives you immediate access to money, with the flexibility of paying it over time.
2.) Establish/Build Your Credit – Using a credit card responsibly is a great way to help build good credit history over time. You don’t want to apply for a card and then just leave it sitting in your wallet. Instead, you might consider putting small, recurring charges on your card. Try to use your card for regular expenses such as a few necessary groceries or a Netflix or magazine subscription, something that you won’t have trouble repaying at the end of the month.
3.) Record Keeping/Budgeting – Your credit card statement is an itemized list of your monthly expenditures, which can be helpful when it comes to budgeting. Having a statement to look at each month can help you keep a close eye on your cash flow. It can also help you cut back when you realize just how much you’re actually spending on frivolous things. When you only use cash it can be hard to remember where all that money went once its been spent, whereas having a credit card record to look at each month can help you avoid excessive spending in the future.
4.) Bill Consolidation – Paying bills has never been easier than with a credit card. Most bills nowadays can be paid automatically or online via credit card, consolidating several payments into one lump sum.
5.) Convenience – Another major advantage to having a credit card is convenience. Credit cards are generally accepted at more places than checks and are generally faster to use. Gone are the days of having to go all the way inside to pay for your gas. Now you can just pay at the pump. Having a credit card also takes the hassle out of having to stand around counting money when you’re in a hurry to checkout.
6.) Rewards – Many credit cards offer reward points. With these types of cards, card-members can earn rewards such as free travel, prizes, or cash back. Some cards offer a “pay yourself back” rewards point system where you receive a certain amount of points based on how much you spend at certain places. Let’s say you earn 2,000 points. That 2,000 points is equal to $20 cash back and you can just turn around and have the credit card company or bank put that $20 right back on your card.
7.) Security – If you lose cash its gone. If you lose a credit card it can be canceled. If you report your card lost or stolen, most credit card companies will protect you against its unauthorized use. Some of these credit card companies, however, charge an annual fee in order for consumers to be covered under this type of agreement. Be sure to read the fine print.
Cons To Using Credit Cards
1.) Cost of Interest & Fees/Debt – The main disadvantage to owning a credit card is its cost to you in interest and fees. Using a credit card responsibly is crucial when it comes to not getting in over your head and putting yourself in credit card debt that you can’t pay back later. Understanding these costs accordingly is key. Keep track of your spending to ensure that you can repay your credit bill in full. There is nothing worse than burying yourself in credit card debt due to outrageous interest rates and late fees.
2.) Security – Security can have its advantages and its disadvantages when it comes to credit cards. If you lose your card or it’s stolen it can be a real hassle having to call and cancel everything. It can also be very stressful having to worry about somebody using your card to make unauthorized purchases and/or somehow getting a hold of other sensitive information that could lead to identity fraud. While some credit card companies offer protection against unauthorized purchases, it can be a real pain having to sort everything out and there is usually an annual fee involved. Be sure to read the fine print in your credit card agreement to see what your card will or will not cover should your card become lost or stolen. These are all important things to consider when getting a credit card.
3.) Hidden Fees – Many times, credit card companies will say or do whatever it takes to get you to apply for a card, however once you’ve signed up they might try charging you for start up fees, processing fees, etc. that you never saw coming.
4.) Annual Fees – Depending on what kind of card you have, you could end up with a really high annual fee that you never saw coming. Sometimes this can be a reasonable fee (i.e. $50 annual fee to protect you in the case of unauthorized purchases if someone were to steal your card). Other times, annual fees can come back to bite you in the butt. To avoid this, always read the fine print before you sign, and ask if there are any hidden fees. Keeping a copy of your credit card agreement and reading new updated agreements when they arrive in the mail is crucial to avoid getting ripped off.
5.) Over-Spending – A credit card with a $500 or $1000 limit can seem like a lot of money at first, but that ten dollars here and twenty dollars there can really add up quickly. Before you know it you’ve spent a lot more than intended and maxed out your cards. Worse yet, you could find yourself not able to pay your card back at all. If you have trouble when it comes to only buying the necessities when shopping, you might want to reconsider that $200 coat you think you can’t live without, or having a credit card at all.