Credit Cards - Yay or Nay?

Credit Cards - Yay or Nay?

Credit cards often get a bad rep, but when used responsibly they can be beneficial. It can be a go-to in a bind, and will help establish and build credit when used wisely. I got my first credit card as a sophomore in college. I found a company that offered a student card with a fairly low limit ($500) and decided to give it a shot. In an effort to not let the credit card get the best of me, I only allowed myself to charge about $100/month. I paid it off at the end of each month and didn’t allow the balance to carry over or accrue interest. The result: I graduated from college with a credit score in the mid 700s. My credit card was being used strictly as a means to establish good credit and not as a substitute for my savings or to buy things that I couldn’t afford. That’s where many consumers go wrong and end up with an unmanageable amount of credit card debit.  

Let’s explore the pros and cons for those of you considering getting your first credit card or for those who currently have a credit card and want to use it wisely and reap the benefits.

Pros:

  • Safety net

    • Great for situations that may put you in a financial bind when you don’t have cash on hand or immediate access to your savings.

  • Cash back and rewards

    • Many credit card companies offer cards that allow you to earn rewards points or cash back on things that you would normally purchase anyway such as gas and/or groceries. I prefer cash back cards because cash rewards are the most useful to me. Choose a cash back or rewards card that fits your needs and use that incentive to your advantage.

  • Offers more security than a debit card

    • In the case of fraudulent charges, credit cards are better at limiting your liability. The process of disputing fraudulent credit card charges is often more painless than disputing debit card theft, and less expensive in terms of liability. Most credit card companies hold you liable for $50 in fraudulent charges. If you fail to notify your bank of fraudulent debit charges in a timely manner, you may be liable for up to $500.

Related Post: 5 Tips To Better Manage Your Credit Card

Cons:

  • Interest and late fees

    • If you carry over a balance from month to month, you will have to pay interest and may incur late fees as well. Credit card interest percentages tend to be in the upper teens to mid-twenties, and sometimes higher. Be sure to watch your balance and pay it in full if possible to avoid interest charges.

  • Easy to overspend

    • Credit cards make it really easy to spend money that you don’t have on things that you essentially can’t afford. My rule of thumb for non-emergency purchases: if you couldn’t afford to pay for it in cash or pay the credit card balance in full when it’s due, don’t charge it.

Having a credit card has its benefits and its drawbacks. The choices that you make with a credit card could make or break your financial situation. Be sure to consider all of these pros and cons (and shop around!) before deciding whether or not applying for a card is right for you.

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