The pros and cons of using credit cards
Credit cards are the most convenient way to pay for just about anything. Need to buy groceries? Book a hotel room? Purchase the latest iPhone? Just put it on your credit card.
That level of convenience is fantastic for managing your finances, but for those who consider themselves a little less responsible and prone to overspending, this accessibility can be dangerous. That’s why credit cards have such a polarizing reputation – you can either work with their purchasing power or have it work against you.
These little cards bring a world of temptation, which is why you need to learn how credit cards work and how to manage them. It’s almost like gambling, where it’s best to get to know the casino site before funding your account to avoid any potential hidden fees and surprise costs. If you’re considering getting a credit card for the first time or giving them a second chance, here’s what you need to know about their pros and cons.
How credit cards can work in your favor
When you get accustomed to staying within your spending limits and paying your balance off in full every cycle, credit cards can be an incredibly useful tool to handle your finances. Here’s why.
Offers Convenience
While debit cards and cash require you to spend your money right then and there, credit cards allow you to make a purchase in seconds and put it on a hypothetical “tab,” no matter what you’re buying. Especially if you’re unsure about the balances in your bank account, you can immediately access funds in case of emergencies. That buy-now-pay-later grace period makes managing your cash flow a lot easier.
Builds a Credit History
While credit scores might be a challenge to understand, you can think of them as a number that tells providers how risky it is to “lend” you money. If it’s a low score, that might raise red flags for them and mean fewer opportunities for you.
If it’s high, you might get better rates and access to better terms. Credit cards are the tool used to build your credit history. The more consistently you make on-time payments, the better your credit score will be, establishing you as a trustworthy individual.
Earns Rewards
Depending on the credit card you apply for, some will reward you cash back, miles, or points you can use to claim items based on the money you spend. It’s one of the biggest draws to using a credit card because, after all, who doesn’t want to be rewarded for buying everyday items?
Certain cards reward you for getting gas or buying groceries, but you can also capitalize on specialty cards that focus on airline miles or have bonuses for certain categories. It’s all about aligning your card with your lifestyle and making sure you get the most out of your spending.
Provides Greater Security
Credit cards have the highest level of security among all payment methods. These card companies have stringent security measures in place to help you protect yourself against fraud. They’ll also have purchase protection and come with the ability to freeze your account in case your card gets into the wrong hands.
As mentioned, credit cards don’t immediately take funds from your bank account and aren’t tied to the funds in there, which means you won’t find yourself in trouble if an unknown transaction happens.
Why credit cards can be risky
If you aren’t on top of your financial game just yet, credit cards can either be a learning experience or a precursor to debt, depending on your management. Here’s why it could be risky in certain circumstances.
High Interest Rates
Forgetting to pay your balance on time means risking the possibility of high interest rates – ones that are pretty steep. The standard percentage hovers around 19.99% to 20.99%, which is significant for most people. If you rack up a balance of $1000 by the end of the month and don’t pay it off for an entire year, you’ll have an extra $200 to worry about on top of your initial amount.
Accumulation of Debt
Debt has a tendency to snowball, and credit cards can make that issue worse if you’re a habitual overspender or borrower. Those leisurely purchases might seem fantastic at the moment, but once you realize you have to pay off your balance soon, you might not have the funds you need. Especially if you only have the money to make minimum payments, interest will continue to build, and it will only get harder to pay off your original balance.
Potential Fees to Pay
Credit cards aren’t as straightforward as debit cards. Debit cards work in an uncomplicated manner, where you pay the amount stated and won’t have to worry about anything else. With credit cards, there are various fees you need to be aware of, aside from the interest fees for late payments.
For example, there are late payment fees, annual fees for owning the card (usually for premium cards), cash advance fees when withdrawing from an ATM or putting money into an online gambling account, and fees for balance transfers and foreign transactions.
How to use credit cards responsibly
Before choosing a credit card and spending to your heart’s content, meet with a financial advisor if you aren’t confident about the process. They’ll help you determine the right credit card for your needs and give you advice on how best to avoid fees and improve your credit score. So long as you spend within your means and make payments on time, credit cards can be a true ally.
