Credit Card Advantages & Disadvantages: Top 17 Pros & Cons
When it comes to managing your finances, you will always find a range of theories and methods for getting the most out of your money. Credit cards are a large part of this conversation.
Some advisors will tell you to avoid them entirely, while others will tell you they can help you reach your financial goals more quickly. There is a range of theories in between on how best to make use of or avoid credit cards.
Here are the top 17 arguments both for and against the use of credit cards, so you can make an informed decision for yourself.
Advantages to Having Credit Cards
There are a number of advantages to having a few, carefully chosen credit cards in your wallet. If you have good credit, it is easier to be picky about which ones you sign on with.
Remember that getting a credit card is a contractual agreement. Here are some of the ways that engaging in that contract will help you with your finances.
- It’s easy to see exactly where your money goes each month. Your credit card statement lists out every purchase and payment and how it affected your balance. When you go online, you can see pending charges and payments as well.
Some credit cards give you the opportunity to categorize your purchases, so you can see exactly where you’re putting your money: food and household goods, utility bills, and entertainment. It can help you to better manage your budget, and you’ll know where your money is going.
- You don’t have to carry cash. Cash is easy to spend and easy to lose. With a credit card, you can pay for almost anything without having cash on hand. There is no risk of losing your hard-earned money before you have a chance to spend it on the things you need.
- In an emergency, you have the option to pay for something if you don’t have the cash. It’s not uncommon to find that costs add up to more than what you thought, or there is an unexpected charge that will stop you from enjoying your plans. When you have a credit card in your back pocket, it’s easy to keep going without interruption and always have that safety net — whether the unexpected expense is a $10 parking fee or a $400 charge for medical expenses in an emergency.
- You may get money back in your pocket. Some credit cards offer a cash payment for opening up the card, making a certain amount of purchases, and keeping the card open for a specified period of time. This is free money if you pay off your card each month before any interest is charged.
Additionally, many credit cards offer cash back for different categories of purchase, or they provide points per purchase that add up and can be traded for gift cards that are the same as cash at different retailers. In some cases, that cash back can be up to 5% on certain categories. It may vary by quarter, so you can earn more on purchases that you make anyway if you keep up with the changes.
- You may be eligible for bonuses. Frequent flyer miles and hotel points are common. The company that owns the card may offer incentives for using their credit card to make purchases. If you’re someone who travels frequently or would like to take a vacation with those points once a year, this may be a nice bonus for the purchases that you’re already making.
- Your purchases are protected. Shoddy work on home repairs or upgrades and charges that you didn’t approve — these can be disputed on your credit card.
All you have to do is notify the credit card company that the person did not perform the work they promised or that you were charged twice for a membership you canceled. They will look into it and help you get your money back. The same cannot be said of cash payments.
- You may have access to insurance on some of your purchases. Depending on the card, when you rent a car or buy jewelry, you may be automatically entitled to a certain amount of insurance on your purchase. This can come in handy, saving you money since you don’t have to buy extra insurance when you’re already covered and protecting you in the event of accident or loss.
- Credit cards can be used globally. No matter where you are in the world, if they accept Visa or Mastercard, you’ll be able to pay for food, a hotel stay, and anything you need. The exchange rate will be automatically calculated and is often fair, saving you the time of converting cash into local currency or dealing with traveler’s checks.
- Having and using credit cards responsibly can help you to build your credit. A good credit score can help you get lower interest rates on car loans, help you get into a rental, and qualify you for certain jobs and loans. Credit card debt is its own category in calculating your credit score, and many financial advisors encourage responsible use of a credit card to help build credit.
Credit Card Disadvantages
Before you get too excited about the advantages associated with responsible credit card use, take a moment to consider some of the things that can go wrong with the use of credit cards.
Some financial advisors will tell you to avoid credit cards completely, especially if you have a limited income since they make it easy to spend beyond your means.
Others will discourage dependence on credit cards, and they both give the following reasons:
- Using credit cards irresponsibly or being unable to pay what you owe can destroy your credit. If you overspend on your credit card and are unable to make the minimum payments when they are due, you could end up destroying your credit. The same is true if you’re using it responsibly but experience a life emergency — like job loss or a medical problem — that makes it impossible for you to pay.
No matter the reason, if you don’t make your minimum payments on time every month, you will hurt your credit in the long run.
- Interest rates can be incredibly expensive. If you have no credit or poor credit, you will likely only qualify for cards that have high interest rates attached. Even if you have great credit, the interest rates on credit cards are the highest of any kind of loan you can get — even higher than a large lump sum personal loan for the same amount in most cases. If you let the purchases stack up month over month without paying them off, it’s going to cost a lot.
- Miscellaneous fees are often tucked into various types of purchases. Annual fees, monthly maintenance fees, fees for international charges, fees for cash advances, fees for missed payments, fees for late payments, and fees for going over the credit card limit — the list of fees that may be charged at any given time when you have and use a credit card (and in the case of annual and monthly fees, even if you don’t use it) is very long. It can tack a significant amount onto your monthly payments and make it more difficult to manage your budget.
- Businesses may charge fees for using a credit card to pay for purchases. In some cases, you will find that if you pay for an item or service with a credit card, the organization or business will pass the fee they pay back to you, tacking an extra 3% or more onto your purchase. These little fees don’t seem like a big deal, but they add up when it happens repeatedly.
- A single late payment can cause your credit to take a hit. Credit card companies are not required to report to the credit bureaus, but many do. If they report that you were even a day late with your payment, it puts a red mark on your credit report, causing your credit score to drop.
This happens even if you were just a few hours late, there was a mistake with your auto-pay, or you were hit by a serious illness. And the information stays on your credit report for years.
- Pushing your credit card over the limit will cost money and hurt your credit. Should you spend more than your credit limit on a single card, it will trigger a big fee and show up on your credit report as well. In most cases, your credit card company will try to stop this from happening.
For example, if you attempt a charge that will put you over the limit, your card will be declined. But if you are close to the limit, miss a payment, and get hit with a fee and/or interest and end up over the limit, you’ll incur an additional fee and penalties. All of this will be reported to the credit bureaus and lower your credit score significantly.
- You are open to credit card fraud. Owning and using credit cards means that you are open to credit card fraud. It may be that someone steals your card and uses it, hacks into any site where you have used the card and harvests the information, or sends you a fake login button via email with a request to update something on your account and steals your login info.
- Overspending is easier and more common. When you walk into a store with $20, it is impossible for you to spend more than $20. If you walk into a store with a credit card, you can easily be seduced by every sale and unexpected item on display since you can just put it on the card. If you do this repeatedly, it’s easy to blow your budget and put more charges on the credit card than you can afford to pay off, which in turn will incur expensive interest payments.
Should You or Should You Not Have a Credit Card?
The decision about whether or not to have a credit card, or multiple credit cards, should be based on your current financial situation and your financial goals.
One of the best ways to split the difference is to take advantage of Current’s debit card. It allows you to use the card to make purchases online or anywhere you would use a credit card, but rather than putting off paying the charge until you get the bill, it is automatically debited from your Current account.
This makes it easier to manage your budget and avoid damaging your credit while getting the benefits of the credit card, including the option to earn points that can be turned into cash back.
Find out more about Current’s rewards debit card and sign up to start getting all the advantages of a credit card with few of the risks.
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How to Budget Better With Credit Cards in 2022. (April 2021). Forbes.
Credit Card or Cash: Which to Use? (September 2020). Investopedia.
Should You Carry Credit or Cash on Hand for Emergency Expenses? We Asked Two Experts (November 2021). CNBC.
How to Get Cash Back From a Credit Card. (January 2022). Bankrate.
Best Airline Credit Cards of March 2022. (March 2022). U.S. News and World Report.
Disputing Credit Card Charges. (August 2012). Federal Trade Commission.
Guide to Credit Card Purchase Protection. (December 2020). Credit Karma.
Why the Online Exchange Rate Doesn’t Match Your Credit Card Statement. (December 2016). NerdWallet.
How to Use a Credit Card to Build Credit. (June 2020). Experian.
Can Too Many Credit Cards Hurt Your Credit Score? (September 2021). Investopedia.
Understanding Credit Card Interest. (January 2022). Investopedia.
Credit Card Processing Fees and Rates Explained (September 2017). Square.
What Happens When You Miss a Credit Card Payment? (July 2021). CNBC.
3 Mental Traps That Can Make You Overspend on a Credit Card, According to a Behavioral Economist. (July 2020). Business Insider.
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