Right now, American consumers have over $1 trillion in total revolving credit debt and an average credit card balance over $6,000. That’s what happens when you don’t use credit cards responsibly: constant debt you can’t get rid of.
But when they are used responsibly, credit cards offer loads of helpful benefits that will improve your financial standing. They can help you establish a good credit rating and earn cash back.
Want to know more? Read this quick guide to the pros and cons of credit cards.
Pros of Credit Cards
Credit cards are often referred to with a negative stigma attached.
So let’s start with the benefits of using credit cards you may not be aware of. Note that these benefits can only be earned through careful and responsible borrowing practices.
Responsible borrowing with credit cards is arguably the easiest way to build a good credit standing.
Your credit score is basically a report card of how good you are at borrowing money. Lenders like to know this score if ever you need to ask them for a loan, such as a mortgage or a car loan.
If you’ve never borrowed, your score is zero. That makes you a wild card, a risky loan applicant. A good credit score makes it easier to get approved for a loan. And usually, it earns you a lower interest rate, too.
If you borrow regularly and always pay on time, you prove you’re a good borrower.
Charging all your regular purchases to credit and then paying them off right away is an easy way to do this. As long as you don’t charge more than you’ll be able to pay off, you’re building credit.
To begin, research the best credit card for average credit, no credit, or whatever your credit standing and start building your credit.
Many credit cards offer you rewards points for your purchases. Using a rewards credit card with the responsible borrowing method we just described will rack up your rewards points.
These points can be redeemed for things like gift cards or statement credits.
If your cash gets stolen, it’s usually gone forever. If your credit card gets stolen, you can call it in and have fraudulent charges removed.
Legally, you can be charged a maximum penalty of $50 for the fraudulent charges. But many cards offer a zero liability policy, in which case you pay nothing.
Cons of Credit Cards
Now we’ll remind you of the potential negative aspects of using credit cards you probably already know. Here’s what happens when you aren’t careful with credit cards.
It’s Easy to Rack Up Debt
As stated above, millions of consumers are thousands of dollars in debt. Why’s that? Because being lazy is easy.
It’s easy to not bother looking at your budget to make sure you can pay back the charges. It’s easy to forget to pay your bill.
It’s also easy to “go paperless” and auto-pay only the minimum payment. This can add several years and thousands of dollars more to your debt.
Unfortunately, it’s not so easy to get back out of debt.
It May Ruin Your Credit
Adopting these lazy, disreputable borrowing practices will decimate your credit rating. Late payments are a huge mark against your credit score.
And, while a little debt won’t hurt your credit, having all your credit lines maxed out will.
Consider These Pros and Cons of Credit Cards
Now that you know the pros and cons of credit cards, what’s your verdict? Are you confident you can reap the benefits of careful credit card use? Or is the danger of overspending too great a risk for you?
Remember these pros and cons and choose wisely.
Now read these Essential Tips For Preventing Credit Card Fraud.