Pros and Cons to Credit Cards

Today it seems that everything is done with cards only. Very few people carry cash around anymore. There are great benefits that come along with using credit cards to make purchases, but there are also big pitfalls as well. Know the risks before you decide.

credit cardPros

  1. Build Credit: Most lenders want to see that you have a reliable track record of repayment. The best way to build up a solid credit score is by having a credit card that you consistently pay off. You’ll need a high credit score to get a loan, buy a car, or make other big purchases.
  2. Make Large Purchases: With a credit card, you can spend extra on things that you need immediately. The money doesn’t draft instantly so that you can finance your money to pay for bills, food, and the credit card spending. Pay in installments to afford big ticket items. You can also have a credit card on standby for emergency purposes only.
  3. Rewards: The more that you spend on a card, the more that the company will reward you. Each card has its own reward program. Some have cash back programs, while others give you skymiles for airlines. Choose the best card for your based on the way that you prefer to spend.
  4. Protected From Fraud: Credit card companies will alert you to odd spending patterns that don’t seem normal for you. They can catch fraud before you’re aware of it.

Cons

  1. Incur Debt: Credit cards make spending easier than you imagine. You may not realize how much you can spend in the course of a month. Soon enough, you’ll spend more than you’ve anticipated. If you make a few large purchases, paying them off can start to become difficult leaving you with debt.
  2. Interest: If you don’t pay off your credit card statement in full each month, interest will be applied to the final amount. Whenever you signed up for the card, the interest rate was given to you. Generally, it’s anywhere from 4-8%. That can mean that your $100 item soon becomes $108. If it’s not paid off, then that amount will keep adding up month after month. The next time you put down a payment, you’ll see that the interest was paid off first before the principle was touched.
  3. Increased Risk of Fraud: Criminals have an opportunity to steal your credit card information and fraudulently use it. You need to take precautions when buying online and only use trusted merchandisers offline and online.
  4. Misuse Hurts Credit Score: If you miss payments, you can hurt your credit score instead of build it. The higher the debt you have, the worse your credit score will be. The next time you request a loan, you’ll have a higher interest rate, and a lower spending limit.

The best course of action is to not live beyond your means. It can be tempting to keep swiping the credit card, but eventually you’ll have to pay it all back. The more you owe, the less freedom you have. Enjoy the rewards of a credit card by paying it off every month with plenty to spare.

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