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The Advantages and Disadvantages of Credit Cards

access_time Posted on: May 24th, 2022

Credit cards are everywhere! In fact, the average American has four credit cards and that number is only going up.

Credit cards are versatile financial tools that come with many benefits. But there are also some disadvantages of which you should be aware. Keep reading to learn more.

7 Advantages of Credit Cards

Whether it’s one of the major credit cards or a retail card specific to one store or brand, credit cards make it easy to purchase items you need, and those you want. The following seven advantages of credit cards make it hard to ignore their usefulness.

1. They’re Convenient

Cash is anything but convenient. For starters, you’ve got to worry about whether you’ve got enough of it. With a credit card, you’ve always got access to funds (as long as you stay within your limit). This includes online, which isn’t an option with cash.

Plus, consider that carrying around too much cash can make you a target for criminals. Not to mention that if your cash is stolen—or if you lose or misplace it—you’ve got no recourse.

2. You’ll Have Protection

But with a credit card, you’ll have protection. If your card is stolen or lost, you can cancel it. Even better? You won’t be responsible for any fraudulent charges.

Credit cards also offer protection against a variety of other issues. For example, you can use them to dispute a charge or get your money back for a defective purchase.

3. They Make Recordkeeping Easy

Do you ever wonder where all your money went at the end of the month? Credit cards provide a clear record of your monthly spending and let you see exactly where your money is going. Knowing how and where you’re spending will help you stay on track financially.

4. They’re the Equivalent of Low-Cost Loans

Let’s say you don’t get paid for a week, but you want to buy something today. With a credit card, you have access to funds to cover that purchase as long as it’s within your credit limit.

And, as long as you pay the full amount by the end of the month, you won’t be subject to interest charges. It’s only when you don’t pay your balance every month that debt begins to accumulate.

5. You May Have Access to Cash Advances

Many credit cards also have a cash advance option. This means that if you need cash to pay for something, you can access it through your line of credit.

Again, making the most of this benefit relies on paying your balance in full each month. This is especially true in the case of cash advances, which often have higher interest rates than normal credit card charges.

6. You Get Perks and Incentives

When you pay for something with cash, that’s it. However, when you pay with a credit card, you have access to membership perks, which include everything from discounts to cashback to frequent flier miles.

Depending on your lifestyle, preferences, and financial goals, some credit card perks will be more desirable than others. Do your research before deciding on which one is right for you.

Explore More: Rewards for Qualifying Purchases

7. You’ll Build Your Credit History

Think bad credit is the only problem? This isn’t the case. Lenders use your credit history to determine your creditworthiness. The reality is that no credit can be just as problematic as bad credit.

Meanwhile, good credit is a window to many benefits in life, including better rates on car insurance and other types of insurance, lower APRs (annual percentage rates) on credit cards, higher credit limits, and more housing options. A good credit score can even help you land a better job as some employers do run credit reports as part of their background checks.

5 Disadvantages of Credit Cards

Nothing is perfect, and that includes credit cards. There are some downfalls to these handy spending tools. The good news is that you can control most of them by staying on task financially.

1. You Might Overspend

With cash, if you don’t have enough to buy something, that’s the end of the story. However, credit opens the door to many purchases. While this is a benefit if you use credit wisely, it can quickly spiral out of control if you don’t. Unfortunately, this happens to many people.

Spending past your limit and not paying off your monthly balances leads to a dangerous snowball effect—and crushing credit card debt that can have a serious impact on your financial future.

2. You’re Subject to Interest Charges

When you overspend in a month and don’t pay your balance in full, you not only have to pay back everything you spent but you’ll also be charged interest. Another way to look at it? If you carry a balance forward from month to month, you end up paying more for everything you bought that month.

Plus, while one month’s interest may not seem like a lot, it becomes a vicious cycle when it happens on a regular basis.

3. The Fees Add Up

Some credit cards come with annual fees. You can also expect to pay fees for late payments and cash advances. If you end up paying more in interest and fees than you’re earning in perks and incentives, the downsides of having a credit card may outweigh the upsides.

4. You’ve Got to Read the Fine Print

Credit card issuers need customers to make money. To get your business, they may offer low initial rates as an incentive. However, these rates may be temporary or subject to change based on your behavior. Without practicing due diligence (and responsible credit use), you may end up paying more interest than you anticipated.

5. Bills Require Routine Scrutiny

Unfortunately, credit cards can be a major target for scammers and other criminals. Your credit card company will reimburse you for fraudulent charges—but only if you notice them. This is why it’s so important to review your bill each month to make sure it is accurate. This allows you to catch any fraudulent charges so you can have them reversed.

Take Advantage of Credit Cards Responsibly

When it comes to the advantages and disadvantages of credit cards, the importance of informed and responsible credit card use cannot be overstated. It is the key to maximizing the benefits and minimizing the drawbacks of credit.

One way to be a responsible credit card user? Understand what you can do to prevent credit card fraud. To get started, check out our roundup of strategies for preventing credit card fraud.

Strategies for Preventing Credit Card Fraud.

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