Every day the mail seems to be brimming over with a new assortment of credit card offers. At the same time, we hear horror stories about the dangers of credit, so the vast majority of those offers end up being thrown away. But if they were such bad things, then surely nobody would ever get them, and the offers would stop. The truth is that they aren't good or bad, in and of themselves, but knowing the advantages and disadvantages of credit cards will help you to make the best decision for you and your finances.
Understanding the advantages and disadvantages of credit cards will help you to use them properly, and protect you financially.
This list is part of the Personal Finance Series, and all though most items you may be well familiar with, maybe one or two will be something new for you. Enjoy the read.
Advantages of Credit Cards
Convenience - Just about every hotel, restaurant and retailer takes credit cards, which makes them a convenient way to pay for purchases. You don't have to carry any cash around, adding another layer of convenience, as well as safety. If you shop online, then a credit card is a must.
Emergencies - While nobody likes to think about it, emergencies can happen at any time. Perhaps you will have enough money in the bank to handle a smaller emergency, but what about a series of small emergencies, or a large emergency?
Buyer protection - Most credit cards offer buying protection for their cardholders. This protection can be a guaranteed refund, a charge back, an extended warranty, or any number of things that increase your rights as a consumer.
Bonuses - Many credit cards include bonuses such as a Cash Back percentage of all your purchases, points for travel or other items and also discounts. Just make sure to use them for what you really need to.
Disadvantages of Credit Cards
Expense - Credit card companies are in business to do one thing: make money. They don't make money unless they can charge you interest and various fees. You are in the minority if you pay your full balance every month. You are in the majority if you start accruing interest on your credit card balance. The real expense comes from the compounding of the interest, and the fact that any fees are usually included in calculating the total amount of your interest.
Temptation - Having to reach into your pocketbook and pull out a crisp twenty-dollar bill to make a purchase seems much harder than handing over a plastic credit card for the same purchase. Studies have shown that people buy more things when they use credit cards; it's as if that little piece of plastic has a hypnotic effect that causes people to give in to temptation.
Debt - Credit cards are designed to put you into debt, but they do it in a way that's deceptive. At first, it's easy to pay more than the minimum amount due, and that gets you into the habit of using your credit card. Over time, your payments get closer to the minimum amount due, and eventually you will struggle to even pay that amount. Once you are late with a payment, even by one day, the penalties kick in and you are in real trouble. Your debt keeps going up, and it gets harder and harder to get out of it.
Understanding the advantages and disadvantages of credit cards will help you to use them properly, and protect you financially.
Personally I only buy what I can pay for with cash, I use a credit card for cash backs or discounts and then repay the credit card before it is due. Be smart about it, take advantage of the benefits and avoid the traps that throw you into further deb and you will be ahead of the pack.
Thanks for reading and good luck.
Personal Finance Series Log.
#1 Pros and Cons of Credit Cards.
#2 Budget Make Over Time?