Credit Cards: The Pros and Cons

Credit cards often get a bad reputation, but the truth is they can be a key financial tool if used responsibly. Here are some of the top advantages and disadvantages to consider before you add a shiny new card to your wallet.  

Advantages 

Convenience: You don’t have to worry about how much cash you have on hand. Just remember that you can always use a debit card instead. With a debit card you won’t be in danger of accumulating debt that will be subject to high interest charges if you don’t pay it off each month, like you would with a credit card. Remember to keep track of your checking account balance to be sure you can cover what you’re buying.   

Recordkeeping: A credit card provides a useful record of your spending through your monthly statement and online account, which would also be the case if you relied on a debit card for spending. Some credit cards do send yearend summaries, though, that can be a great resource when you’re doing your taxes.  

Low-cost loans: You’re getting your paycheck in five days, but there’s a purchase you need to make today. You can charge your purchase now and pay off the charge after you get paid. The key here is to make sure you will be able to pay off the charge by the due date.  

Cash advances: You can get money when you need it. Be aware that cash advances often have a higher interest rate, so it’s important that you have a realistic plan to pay back those advances.  

Member perks: With some smart shopping, you can choose from a wide range of discounts or cash back based on your purchases. Compare the cards available to see which perks best fit your needs and spending habits.  

Build a good credit history: Using a line of credit by making purchases—and paying them off on time—will help you get a good credit rating from credit rating agencies, which will make lenders more likely to lend to you and offer you a good interest rate.  

Purchase protection: Your credit card may step in to help if you want to dispute a charge or return a defective product. While a debit card may offer similar protection, you will have to wait until the issue is investigated before getting your money back.  

Disadvantages 

Temptation: Since they’re so easy to use, they also make it easy to overspend.  

Interest charges: If you buy something and don’t pay it off immediately, you will end up paying not only the purchase price but also the interest charge on that item. In other words, if you carry a balance, all your purchases will end up costing you a little more.  

Fees: Some accounts have annual fees. There may also be fees for cash advances, along with high interest rates. In addition, you may spend more on interest and fees than you earn in discounts or cash back. Make sure the benefits outweigh the costs.  

Monthly scrutiny: You must review your bill each month to confirm that it accurately reflects your purchases and that there aren’t any signs of fraudulent use of your card. Credit cards are a prime target for scammers.  

Tricky short-term teaser rates: A low interest rate may seem like a good deal, but many people are surprised to find that the rate was only temporary. If you don’t read the fine print, you may pay far more in interest than you expected.