The pros and cons of credit cards

April 4th, 2014 Kara Sabo

Credit cards can be very convenient and useful, but they can also lead to stressful financial situations. That’s why it’s helpful and financially smart to understand the pros and cons of credit cards. Here are the main advantages and disadvantages you’ll want to know about.

Pros

1. Convenience. Credit cards can often make purchases quicker and easier than cash or checks.  Here are a few examples of purchases credit cards are convenient for:

  • Shopping online where you charge it to your credit card, and don’t have to send a check.
  • Purchasing fuel for your car where you just insert the credit card in the gas machine, and don’t have to go inside to pay cash.
  • Going on vacation, even in foreign countries, and not needing to take lots of cash or use checks to pay for hotels, meals, flights, entertainment and more.

2. Credit rating. If you pay off the amount you owe on your card each month, it will help raise your credit rating.

3. Emergency Payments. Credit cards can add to your financial security. If a financial emergency happens – such as a car breakdown, medical problems, or unexpected tax payments – you can pay for it with a credit card. You can then handle unexpected expenses with a monthly payment.

4. Discounts. Many stores offer discounts and other rewards when using a credit card. In addition, many credit cards offer cash back rewards, or points that can be collected over time and used for things like free airline tickets.

5. Security. Carrying a credit card to pay for things–especially on vacations –is much safer than carrying a lot of cash. If your cash is stolen, you lose it all. If your credit card is stolen, you just report it to the creditor, and then your card will be unusable by the thief.

Cons

1. Temptation to spend too much.  The biggest issue with a credit card is if you use it to spend too much, and don’t pay down the balance each month.  This can create a heavy burden of debt for you, which often forces you to use the credit card for even more spending and continues raising your debt.

2. Credit score reduction. If you run up high-level balances on your credit cards and don’t pay them down each month, your credit score will be reduced, and many times your credit balances on your cards will be reduced, further lowering your credit score.

3. High interest. Many credit cards charge a very high interest rate, which can be expensive if you don’t pay off the full balance each month. By paying the high interest rate, it makes everything you purchase on the credit card much more expensive.

4. Poor purchase decisions. Sometimes, having a credit card can encourage you to purchase something you shouldn’t spend your money on. It’s best to think of your credit card as spending cash –would you still make the purchase if you had to pay cash for it?

5. Missing payments. If you don’t make a payment, or miss a payment for over 30 days, you are usually charged late fees and your interest is raised. In addition, it can negatively impact your credit score and give lenders a poor view of your financial strength.

Understanding these pros and cons of credit cards can help you make better decisions on how to use them and feel more confident. Follow the pros and avoid the cons, and you’ll be much more financially secure.

About the author

Kara Sabo is Assistant Retail Managing Officer at MidWestOne Bank. She works in the retail department, specializing in checking and savings accounts, consumer loans, auto loans and home equity loans. NMLS number: 1415030

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