Credit Cards

Credit cards are not only convenient but are also a life saver in so many ways. Many people depend largely on using credit cards for all their purchases. But this also comes with a number of cons.

 

Pros:

1. More purchasing options: over the phone, via the internet, and in person. If you only have cash, you’re limited to in-person purchases unless you purchase money orders.

2. Faster to use: Again, compared to cash and especially with writing a check, credit cards are much faster to use. Swipe your card and you’re done in seconds.

3. 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.

4. 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.

5. 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.

6. Rewards: Ability to earn rewards that can be used 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.

7. Free item financing: Ability to finance items for free when you take advantage of interest promotions. Many credit cards come with 0% interest on purchases and balance transfers for an introductory period of at least six months.

8. No loss of funds after fraudulent purchases: If a thief 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.

9. 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.

10. 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.

 

Cons:

1. 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.

2. 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.

3. The terms can be confusing: person who’s not used to reading credit card agreements can easily be confused by the phrasing and the jargon. Understanding credit card terms is important to use the credit card in a way that doesn’t put you at risk of fees.

4. 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.

5. 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.

6. 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.

7. 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.

8. Interest: One of the most obvious drawbacks of using a credit card is paying back interest. A high APR can drag you deeper and deeper in debt if you don’t pay off your balance quickly. There are a couple of alternatives. You can either pay off purchases in full before the grace period ends and avoid taking on interest, or you can apply for a card with a 0% introductory APR to give you time to pay off purchases without racking up charges.

9. Ease of spending: Credit cards make it easy to spend money — maybe too easy. When you’re not shelling out greenbacks, it’s easy to become detached from spending. Swiping that little piece of plastic doesn’t seem like a big deal.

10. Destroy credit: If abused, credit cards can send your credit score into a downward spiral. Your credit score will take a hit if you miss payments, carry a high balance or have too many open credit card accounts.

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