For many people, credit cards are just a part of normal life. Most people have one or even several and it’s something that they don’t even really think about. Other people avoid them at all costs and preach the dangers and pitfalls of being in debt. So who is right? Well, that totally depends on your own personal situation. As with most things in life, there are pros and cons to owning credit cards. You simply have to weigh them out and figure out which way best applies to your life. To help you out, we’ve made a list of good and bad points when it comes to credit cards.
When used the right way and handled responsibly, credit cards can help you in your financial journey.
- Most credit cards come with a rewards system. These rewards can be anything from a certain percentage of cash back to free airline tickets to a free cruise. It just depends on which credit card you choose. Many people who play the “rewards game” correctly will pick the card with the rewards they deem most enticing and will use that card for every purchase they make–even bills. They will use it like a debit card and then pay the balance off in full every month, thereby ensuring that they rack up the most points to get to their reward faster. If you are an incredibly responsible person, this method could work for you.
- Using a credit card the right way will help you have a good credit score. Good credit scores are usually needed if you want to purchase a house or finance a car. The higher the score, the better. You only get great credit scores if you handle your credit cards responsibly.
- Credit cards can be useful in emergencies. While the best way to plan for an emergency is to have an emergency savings fund set up, sometimes that just isn’t a reality for a lot of people. If a true emergency does arise and you don’t have enough cash to cover it, credit cards can come in handy to cover the difference.
As you can see, there are some benefits to using credit cards the right way. But what does it mean to use cards responsibly? Here are a few tips:
- Pay off the balance in full every month.
- Pay all your bills on time–never late.
- Only apply for credit cards that are needed. Here’s a hint: You probably don’t need 10 different cards.
If you feel like you can do those three things, then using a credit card for the benefits might be a good option for you.
Now let’s talk about the downside of having credit cards. As much as some people go into owning credit cards with good intentions, a lot of them just can’t handle the temptation of them and it gets out of hand very quickly. Here’s a list of what can happen when having a credit card goes wrong:
- It can have a negative effect on your credit score. If you are late on your payments or have too many cards with high balances, it negatively affects your credit score. A lower credit score can disqualify you from future loans for cars or homes. Oftentimes, if your score is really low, you won’t even be able to rent.
- It makes your interest payment even higher. If you are ever late on a payment, your interest rate can skyrocket on some cards. If they don’t trust you to pay them, you will suffer the consequences.
- Having access to credit tempts you to overcharge. Some people possess a lot of self-discipline and some don’t. Those who don’t are the ones who fall prey to overcharging on their credit cards. They get to a point where they can’t pay the balance off every month, which leads to extra interest charges and can start a very dangerous slippery slope into massive debt.
- It puts you in unnecessary financial distress. If you consistently overcharge, you will become financially distressed at some point. If you have 5 cards and you can only make the minimum payment on each, it can get overwhelming. Some people may be so far over their heads in debt that they can’t even make the minimum payments. That’s when panic can start to set in.
To make sure these pitfalls do not happen to you, it would be wise to avoid the following credit card traps:
- Not paying your bill on time.
- Only paying the minimum amount on each monthly bill.
- Having too many cards open at the same time.
- Overcharging and spending money you can’t pay off in full every month.
- Exceeding your credit limit on your card.
It’s extremely important that you weigh the pros and cons to credit cards before you start opening accounts. When used well, it can be a nice tool in your journey towards financial success, but it can go wrong very fast. It’s wise to think about how self-disciplined you are before delving into the world of credit cards. It’s up to you to choose wisely.