Credit Cards make life easier, enabling you to get access to everything you need without worrying about instant payment. From groceries to clothing, jewelries, cars and travel, there is a credit card for several needs. With all these advantages, can we change the saying that ‘all that glitters is not gold’ with a credit card? Does it make life easier without adding any disadvantage? Certainly not, credit cards come with a lot of pros as well as cons. After going through this article, you will know if the pros outweigh the cons. And you will be able to decide whether to go for a credit card or not.
The Pros of Credit Cards
- More Purchasing Options: If you only have cash, you’re limited to in-person purchases unless you purchase money orders. With a credit card you can decide to pay over the phone, via the internet or in-person.
- Faster to Use: Credit cards are much faster to use compared to cash and especially with writing a check. Just swipe your card and you’re done in seconds.
- Ability to Pay in Installments: While it’s best to pay your credit card balance in full each month, you do have the ability to pay off your balance over a period of time. The exception is with charge cards, which require you to pay in full to keep your card in good standing.
- The Credit Boost: If used correctly–making your payments on time and keeping your balance low–credit cards help you build a good credit score that you can use to qualify for a mortgage or auto loan.
- Funding for Emergencies: While not the best option for covering an emergency, a credit card can help you cover an unexpected expense if you can’t afford to pay it from savings.
- Offers Rewards: With most credit cards, you can earn rewards that can be redeemed for cash, gift cards, miles, or other merchandise. The more you use your credit card, the more rewards you earn. You can redeem your rewards as you go or save up for a bigger redemption.
- Ability to Finance Items for Free When You Take Advantage of Promotional Offers: Many credit cards come with 0% interest on purchases and balance transfers for an introductory period of at least six months. This gives you the convenience to pay off your balance over time without incurring an extra cost.
- No Loss of Funds After Fraudulent Purchases: If a hacker gets access to your checking account, they have the ability to drain all the money and you have to wait for the bank to process your fraud report and replace the funds. With a credit card, you may have to wait for the card issuer to clear up the fraud, but at least you still have access to your main source of funding in the meantime. Some issuers offer protection that makes you not liable for any fraudulent transaction.
- The Right to Withhold Payment for Billing Errors: When there’s an error on your statement, you have the right to dispute it with the credit card issuer. In the meantime, you don’t have to pay for that purchase unless, after you dispute in writing, the credit card issuer’s investigation turns against your favor.
- No Need to Carry Cash: The majority of places accept credit cards, which means you don’t have to stop by the ATM to pull out cash before going out. But keep in mind that some places may not allow you to tip via credit card.
Take a look at some downsides of credit cards:
- They Reduce Your Future Income: Each time you use a credit card–or any form of debt–you’re borrowing from money that you haven’t earned. A portion of your future income has to go toward repaying your credit card balance if you want to protect your credit.
- Temptation to Spend More Than You Can Afford: Credit cards open up additional purchasing power and give you the illusion that you have more money than you really do. With a credit card, you may be tempted to spend more than you can afford after all, you’re not expected to pay immediately.
- The Terms Can Be Confusing: A person who’s not used to reading credit card agreements can easily be confused by the terms and the conditions. Understanding credit card terms is important to use the credit card in a way that doesn’t put you at risk of fees.
- Fees and Interest Can Be Expensive: Depending on the credit card and how you use it, your credit can cost hundreds of dollars over the course of a year. This is why understanding the credit card terms is so important – so you know how to avoid credit card fees.
- Potential for Credit Card Fraud: Just having a credit card puts you at risk of credit card fraud. Thieves don’t have to steal your credit card to get your information. They can hack the store where you shop or websites that you’ve used your credit card to steal your card details and use it to make fraudulent purchases. (You’re typically not liable as long as you report the charges right away).
- Potential for Debt: You create debt each time you use your credit card. You can keep the debt from growing by paying off your balance each month, but if you only pay the minimum and keep making purchases, your debt will grow.
- Misuse Can Ruin Your Credit Score: Your credit score is tied directly to how you use your credit card. If you run up big balances and pay your credit card late, your credit score will be impacted.
While credit cards have some negative aspects, there are some good deals you cannot refuse. Just make sure you pay your balance in full when due and don’t spend more than you can repay.