These days, most of us have at least one credit card, whether it’s a Visa, a Mastercard or Discover Card, or even just a store credit card. Many of us have several. There are definite advantages to having credit cards, but there are also some drawbacks. In my experience, these are some of the best pros and worst cons of credit cards.
Buy now, pay later
A credit card can give you the ability to afford the cost of an emergency. Mine came in handy two years ago when one of my cats swallowed a piece of fabric. He eventually passed it, but doing so made him very sick. He needed emergency surgery and a 10-day hospital stay, which came out to over $2,000. I never would have been able to pay for his care without my credit card, but he was so sick that it wasn’t something I could put off, either.
Building a credit history
Companies pull your credit history for everything. If you’re applying for a job, looking for a loan, or trying to buy insurance, you need good credit history. Credit cards can be a good way to start building that history. They’re easier to get than a loan when you have no history (or if you’re recovering from a bankruptcy), and if you’re responsible with them, you’ll build a good history that can open doors for you.
No direct access to your checking account.
Let’s face it, plastic is more convenient than writing a check, or making sure you have enough cash. But debit cards go directly to your checking account, while credit cards don’t.
Furthermore, federal law states that, if your credit card is stolen, you’re only liable for up to $50 of the fraudulent charges, while protections are considerably more complicated with debit cards. Also, banks are very, very good at handling stolen credit cards, because it’s their money that’s been stolen. You may have more trouble when your debit card is stolen and your checking account is cleaned out and overdrawn.
Buy now, pay later
When I was younger, I noticed how easy it was to think, “Oh, I’ll just put it on the credit card. That won’t be a problem.” Before I knew it, I had nearly $8,000 on that card, to say nothing of my other cards. Thankfully, I was able to pull myself out of that spiral before it did me in financially. It served as good lesson for me about the fact that credit cards aren’t free money.
“Buy now, pay later” is great when you really do need something now that you can’t otherwise afford. However, they should be used with care to avoid getting into a spiral of debt from which you can’t escape.
Interest rates and late fees
I once thought I’d paid off a credit card, but didn’t send the payment time to also pay off all of that month’s accrued interest. I had a balance of $.68 turn into over $120 because I didn’t pay attention to the card after I sent that payment. While I was able to work it out with that particular bank, you can’t assume that every bank will be as cooperative, especially since it’s money you do owe. So you have to pay close attention to your statements and records to avoid that.
Meticulous records are also a good idea in case there’s a mistake. It happens, and you don’t want to pay hundreds, or thousands of dollars you don’t owe because the store accidentally applied a purchase twice, or because the bank accidentally charged you double interest.