Pros and Cons of Credit Cards

Credit cards can be your best friend or your worst nightmare, depending on how you use them. If used responsibly and correctly, credit cards can be extremely beneficial for you in several ways and even be better than cash in some situations. But with all things, there’s a negative side to credit cards. If you don’t use credit cards wisely and allow them to get out of control they can create stress, headaches, and financial hardship that you never expected.

Benefits of Credit Cards
If you’re using your credit card wisely and responsibly, the benefits that you can get from the card are countless. Some of the key benefits of credit cards are:

  • Improved Credit Score: This is probably the biggest Pro of credit cards for most people. Credit cards are a great way to help establish and build your credit. As long as you’re using your card responsibly and wisely, credit cards can help improve your credit. Make all of your payments on time, and only charge what you can afford. There are two schools of thought for improving your credit with credit cards. One involves charging small amounts and paying off the full balance each month. The other is leaving a slight balance every month in order to show you can pay over a long term. Whichever you choose, make sure your balance doesn’t get out of hand.
  • Rewards: A lot of credit cards have started offering some sort of reward system for customers. As you spend more, you get more points which you can redeem for a variety of things such as frequent flier miles, gift cards, or even cash back.
  • Proof of purchase: Today it has become common to make big purchases with credit cards because when you use your credit card you have proof of your purchase beyond a receipt. With cash transactions, if you lose your receipt you have absolutely no proof of how much you paid or when you bought your items. If there’s ever any dispute on how much you were charged you can simply look at your credit card statement and you have evidence easily available.
  • Makes purchases quick and easy: Credit cards make it very easy and quick to make your purchases. All you have to do is swipe your card and your purchase is complete (assuming your card wasn’t declined). Checks can be time consuming, and the merchant isn’t guaranteed the funds. Cash is also great, but it can be lost, and again, once you have lost your receipt there is no proof you purchased anything.
  • Emergency Funds: Sometimes you have unplanned emergencies that you don’t have the cash to cover. For example if you have unexpected issues with your car and it will cost you $500 to fix but it wasn’t in your budget, credit cards leave you with an option to pay for it over time. Be careful to keep control over what you define as an emergency though. A pair of expensive shoes you can’t afford that are only available for a limited time is probably not a big emergency. However, if you need to replace your heater in the winter, then that would most likely count as an emergency so you can justify using your credit card.

Disadvantages of Credit Cards
While credit cards can be very beneficial if used wisely, there is a dark side to them. If they were perfect, everyone would have them and the economy would probably be better off. Here are some of the down sides of credit cards:

  • Debt: Millions of Americans have tons and tons of credit card debt that and are victims to high interest rates. Remember, the amount you’re charging has to be paid off eventually. And right now, the interest rate on most credit cards is above 15% on purchases, so keep that in mind if you have a tendency to max out your credit cards. Credit card debt has led many people to file for bankruptcy or seek government assistance to help relieve credit card debt. And if you’re just making the minimum payments, it may eventually start to have a negative effect on your credit score.
  • Fees: Everyone hates fees but they come with the territory. Certain fees are mandatory and some are avoidable. Fees for going over your limit, making late payments, or other penalty fees can be saved by making all your payments on time and making sure you’re abiding by the terms of your credit card contract.
  • Fraud/Theft: One danger of credit cards is the possibility of fraudulent charges occurring on your account. If someone gets a hold of your credit card information illegally and charges things without your consent, you’ll have to go through the process of filing a claim with your bank or Credit Card Company. This can be time consuming and may leave you feeling unsecured. Card holders do have certain protections that limit their liability for fraudulent charges, provided that they’re reported within a reasonable time frame. If you lose your physical credit card the first thing you should do is call you issuer and cancel or put a hold on it immediately. Also if you feel your credit card information is at risk due to an online transaction, you should again report it to your issuer as soon as possible.
  • Can alter your judgment: Some people tend to buy things they otherwise wouldn’t if they didn’t have a credit card available. They feel that they can just charge it and worry about paying for it later. Then when “later” comes they don’t have the funds to pay for it, which puts them in a hole.

Use credit cards wisely and responsibly and you can enjoy the benefits of credit cards while minimizing the amount of disadvantages that may come along with them. Important things to remember to avoid the bad parts of credit cards is to only spend what you can afford and make sure you read your contract.

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