Finance Friday

Pros and Cons of Credit Cards

Credit cards are not all bad. Of course some credit cards are better than others but overall, you must be disciplined to be able to use them without the fees and charges taking over your life. If you are not the type of person who remembers to pay off your balances before your scheduled due dates, then be very cautious about using a credit card.

Follow these 3 simple steps when having a credit card, and build your credit and take advantage of amazing rewards.

  1. CHOOSE the right card for you and your lifestyle.
  2. MONITOR your transactions regularly.
  3. PAY your bill in full every month. (THIS PRINCIPLE IS THE MOST IMPORTANT)
Stores like the Children’s Place will give great discounts to card holders, but their fees if you are late on a payment are ridiculous. You will often pay double, triple, or more if you can not pay at least the minimum balance.
Here are some of the pros and cons of having credit cards.

CONS

  • It is easy to over do it – Using credit Cards can give you the illusion that you have more money than you actually own. Using your credit for everything may cause a person to buy more than the items that he or she actually needs.
  • Charged more fees – Many credit card companies allow people to write checks or withdraw money from ATM machines, but the fees for these services are not usually worth using. Fees add up quickly if you do not pay off the entire balance.
  • Hidden exclusions –  Although credit card companies have reward programs, sometimes the rewards are not available if your bill is not paid in full or if you only pay the minimum balance you may not be able to take advantage of the program.
  • What you don’t know can hurt you – The fine print is really small. When these companies send you their Terms and Conditions, it is usually tiring to read the small print that lists the important user information. Unfortunately, not knowing these critical details can affect your finance history for life.
  • It can be a long-term commitment – Credit cards are usually easy to get, but may take years to pay off or get rid of them. You may also be tempted to get more cards than you can easily handle. You may also make bigger purchases if you don’t literally have to see the money leave your hands.
  • Can make poor spending habits worse – They don’t usually come with information telling you how to be a successful credit card user / holder. If a credit card holder does not have a good solid financial understanding having a credit card can lead to an unrealistic view about your expendable income.
  • Your private information is no longer as private – Some cards sell your credit score and information to their partners, which you may have agreed to by not opting out of this type of information sharing. Every purchase you make with your card is tracked.

PROS

  • Helps build credit history – In today’s world you need to have credit to finance a big purchase; such as financing your own home or car. As a result, it is may be wise to have a credit card to help you build a credit history.
  • Provides an automatic ledger of things you buy – In order to be a successful credit card user you need to monitor your account/accounts and know what transactions are made and when the bill is due. Staying aware will help you be more accountable to yourself about your finances.
  • Free money / incentives – If you have discipline, you should use your credit card only when you have the cash to back up the purchases that you have made. By doing this successfully, you will be able to use the rewards programs as if they are extra money going back into your pocket.We have used rewards to remodel our bathroom, purchase a new wardrobe for our children, and the gift cards make great gifts for our friends.
  • Pay on-time and you’ll be rewarded – If you develop a good credit history by being responsible with your credit cards, you will be offered a lower interest rate on goods that you may actually need to finance.
  • Necessary for hotels, rental cars and more – If you want to purchase items online or rent a car, usually a credit card is required so it is great to have one on hand.
  • Free exclusive discounts. Some financial advisers do not recommend people get store credit cards, but if you shop at one store often having their credit card can possibly save you thousands of dollars because of their exclusive member’s benefits. Keep in mind though, with this option I only recommend that you buy items when you have the money to pay your balance in full before it is due. The interest rate for store cards are around 20%, which is difficult to reduce.
  • Choose a card wisely – You need to search for the right card for you and your lifestyle. If your credit card is not benefiting you and you are good at paying your bill, then you have the wrong card.
  • Credit cards are good to have in case of an emergency. Hopefully, you have an emergency fund as well, but keep in mind that a card is easy to keep with you regardless of where you are.
  • With the internet being available almost everywhere and without a computer, it is easy to know where you stand with your credit card company. If you stay aware and pay your bill on time (again, I believe it should always be paid in full) you will have not problem. 
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