Credit cards often get a bad reputation, but the truth is they can be a key financial tool if used responsibly. Here are some of the top advantages and disadvantages to consider before you add a shiny new card to your wallet.
Advantages
Convenience: You don’t have to worry about how muchcash you have on hand. Justremember that you canalwaysusea debit card instead.With a debit cardyou won’t be in danger of accumulating debtthat will be subject to highinterest charges if you don’t pay it off each month, like you would with a credit card.Remember tokeep track of your checking account balanceto be sure you cancover what you’re buying.
Recordkeeping: A credit card providesa useful record of your spending through your monthly statement and online account, which would also be the case if you relied on a debit card for spending.Some credit cards do send yearend summaries, though, that canbea great resource when you’re doing your taxes.
Low-cost loans:You’re getting your paycheck in five days, but there’s a purchase you need to make today. You can chargeyourpurchasenow andpayoff the chargeafter you get paid.The key here is to make sure you will be able to pay off the charge by the due date.
Cash advances:You can get money when you need it.Be aware that cash advances often have a higher interest rate, so it’s importantthat you have a realistic plan to pay back those advances.
Member perks: With some smart shopping, you canchoose froma wide range of discounts or cash back based on your purchases.Compare the cards available to see which perks best fit your needs and spending habits.
Build a good credit history:Using a line of credit by making purchases—and paying them offon time—will help you get a good credit rating from credit rating agencies, which will make lenders more likely to lend to you and offer you a goodinterestrate.
Purchase protection:Your credit card may step in to help if you want to dispute a charge or return a defective product.While a debit card may offer similar protection, you will have to wait until the issue is investigated before getting your money back.
Disadvantages
Temptation: Since they’re so easy to use, they also make it easy to overspend.
Interest charges: If you buy something and don’t pay it off immediately, you will end up paying not only the purchase price but alsotheinterest charge on that item.In other words, if you carry abalance, allyour purchases willend upcosting youa little more.
Fees: Some accountshave annual fees. There mayalso be feesfor cash advances, along with high interest rates.In addition, you may spend more on interest and fees thanyou earn in discounts or cash back.Make sure the benefits outweigh the costs.
Monthly scrutiny: You must reviewyour bill each month to confirmthat it accurately reflects your purchases and that there aren’t any signs of fraudulent use of your card.Credit cards are a prime target for scammers.
Tricky short-term teaser rates: A low interest rate may seem like a good deal, but many people are surprised to find that the rate was only temporary. If you don’t read the fine print, you may pay far more in interest than you expected.
