Pros and Cons of Credit Cards

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Credit cards are the prevalent form of payment in our country. However, in spite of their convenience, there are some drawbacks to credit cards. While some contend that credit cards are pure evil, the truth is that they are tools. Whether or not they are tools that are likely to work for you depends on your financial goals and you situation.

Before you make a decision about whether or not to get a credit card, it helps to consider your own financial situation, and decide which card is mostly likely to help you meet your goals (if any card can do that). Here are some of the pros and cons of credit cards:

Advantages to Credit Cards

There are some advantages to using credit cards. Before you write them off as completely evil and useless, consider some of the advantages to using credit cards:

  • Convenience: First of all, credit cards are convenient. Instead of carrying cash or checks, you carry a small piece of plastic. It’s easy to swipe credit cards for payment, and they are accepted all over the world. And, while you will pay fees for using the card in another country, it can get rid of the inconvenience associated with exchange cash. (Some point out that debit cards are just as convenient in this way.)
  • Security: By law, you are protected from liability related to fraudulent transactions with credit cards. You are only liable for $50, as long as you follow procedure. (Some branded debit cards have similar protections, but getting them may include more onerous requirements.) You won’t see the same level of protection with cash and checks.
  • Rewards: Many credit cards allow you to earn rewards. You can earn free travel, and you can even get cash back. While there are some rewards debit cards, they are few and far between. In many cases, your best bet for rewards is a credit card.
  • Other perks: Credit cards often come with other perks. Some of these include concierge services, travel insurance, rental car insurance, and special discounts.
  • Instant gratification: If you want to buy something right now, but don’t quite have the money for it, you can make your purchase with a credit card and pay later. Some might consider this a drawback, though, because of the ease you can get into debt.

Disadvantages to Credit Cards

As with most things in life, the good is balanced by the bad. There are some definite drawbacks to using credit cards, especially if you aren’t careful. Here are some of the downsides:

  • You are borrowing, and pay interest: Remember that a credit card doesn’t represent “your” money. It’s not money that you currently have. It’s money that you are borrowing.When you borrow, you have to pay interest. Interest rates on credit cards can be quite high. The only way to avoid this is to pay off your balance each month. Otherwise, interest will quickly overset any benefit from rewards and perks.
  • Fees: Many credit cards come with fees. Annual fees, late fees, over the limit fees, and other fees can start to add up. You’ll pay fees for balance transfers and higher interest rates for cash advances. You have to be diligent about avoiding fees with credit cards.
  • Easy to fall into the debt trap: Studies show that it’s much easier to overspend when you use a credit card. This means that you might not even realize how much you are spending, and it becomes easy to spend more than you can easily repay in the course of a month. If you aren’t careful, you could be in over your head.

What do you think? Do the benefits of smart credit card use outweigh the potential pitfalls?

{ 13 comments, please add your thoughts now! }

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13 Responses to “Pros and Cons of Credit Cards”

  1. Matt says:

    The only con is the debt trap. You can get a card with no annual fee and you can pay off your balance on time, unless you fall into the debt trap.

  2. Sarah in Alaska says:

    Don’t forget that some credit cards (Discover and Captial One) won’t charge you a fee if you use it out of the country. My bank and other credit cards do charge $2.50 per international transaction. That is a benefit that I like to have when traveling across the border.

  3. I would say that although there are many pros and cons but, unless you have truly great self control, credit cards should be kept as a tool for emergencies. You mentioned great benefits, like security, but so many people fall into the debt trap that these pros and cons may not weigh equally for each person. It’s a tough question you pose and I think the answer varies from person to person.

  4. Surprised a major pro wasn’t listed: building your credit rating! After getting out of debt, I went without cards for years, and my credit rating plummeted. Apparently it is essential to build credit this way. So I now have 2 cards, pay them in full each month (I rarely use it for luxury items, only essentials like groceries). I have embraced a simplistic life style, and swore never to be in debt again. However, it is taking a long time to rebuild my credit this way. (And I am paying a higher car insurance rates because of that.)

  5. JoeTaxpayer says:

    Extended warranty. Many cards will double the warranty up to a year. For electronics this can be worth 5-10% the value of the item.

  6. Some credit cards offer sign up bonuses (miles, cash) as well that one can take advantage of.

  7. I have never spent more on my credit card than I had in my bank account. It’s pretty simple to me, if you have $100 in your bank account, don’t spend more than that. You can go get all the credit cards you want and as long as you follow that simple rule, you will never go into cc debt. Even a 5 year old can follow those directions.

    Once you become responsible about that, you can start taking advantage of the sign-up bonuses all while actually boosting your credit score. How does an extra $5k a year tax-free sound??

  8. ChimChim says:

    Simply pay your credit card balance in full every month. Follow that rule and everything is cream cheese (remember Teen Wolf…)

    Best US only card – AMEX Blue Cash – Cash is King

    Best INTL card – Chase VISA Sapphire Preferred – no foreign transaction fees

    Hopp Schweiz!

  9. Shirley says:

    As long as you pay the total bill each month a CC with rewards like cash back can prove to be a windfall. We pay for groceries, gas, all utilities, cable TV, internet access and anything possible with the CC and usually get back close to $50 each month.

  10. bp shah says:

    in this country, one must have credit, for which one will have to borrow to begin with. however, if one pays the full balance in time, it is well and good. this will establish a good credit rating.

  11. AndraMMM says:

    One thing to remember that’s in your favor — the period of time between the charge and the bill payment (if you pay the full bill) means you have “borrowed” money for free. In these days of low bank interest, that’s not worth a lot, but in periods of high interest, it is valuable and can certainly add up.

  12. I love them, like Oreos. But I have tremendous self control with cards, unlike my losing battle with the cookie.

    Last year, I made $3,844 tax free by taking advantage of card promotions. I also collected 238,000 flyer miles while never leaving terra firma.

    Always pay the balance off in full every month.

  13. K says:

    Advantages other than the ones it the article is that using the card instead of a bank account saves you from worrying about overdraft fees for being even a penny over.

    Also, if a vendor doesn’t deliver what was promised, you can dispute the charge; with a debit card they consider a civil matter and will not credit back unless it is fraud and you file a police report and fill out an affidavit.

    If you can stick to a budget, use it only for things you would buy with cash you have and pay it off in full every month, it can be an advantage. If you have an emergency and have to charge it is cheaper than a payday loan. If you work it into your budget and agree with yourself to pay it off in “installments” over a specified period of time (3 mos, 6 mos, 1 year, etc.) for that emergency it can keep you on track.

    When I was in need of vehicle but could only afford $40 a month on my budget I could not find financing. I ended up doing a cash advance and purchased a used vehicle for $2,000 and while I paid interest at 9%, it was less expensive that being pushed into a more expensive payment and a higher priced vehicle to be able to get the financing.

    I think the traps are using it to buy whatever you want whenever you want and only paying the minimum balance as you will never get it paid off and it will just keep climbing.

    Cons, other than the ones mentioned, are if you do get behind on the minimum amount for any reason, in addition to high late fees, depending on the credit card company are $35+ per month, they can jack the interest rate to a default rate for the maximum in your state, which could run 24%+. On top of that, they can charge overlimit fees if you go over the limit established on your card and within a short period of time you could owe several times what you originally charged on the card. To avoid this, set up online banking for at least the minimum amount each month.

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