Should You Really Be Using Credit Cards?

Credit cards are becoming increasingly common in modern society, with many people having at least one or two.

While credit cards offer many benefits, like:

• Convenience

• Rewards

• Protection

They can also come with drawbacks, like:

• High interest rates

• Fees

• The potential for overspending and getting into debt

Let’s dive into the pros and cons of credit cards in today’s society.

But, I won’t make the decision for you.

I want you to decide which pros and cons are relevant to you, so you can decide whether to start using one.

Benefits of Credit Cards

Let’s begin by discussing some of the positives, and why they’re still a fundamental part of people’s finances.

Convenience

You can buy things without having to carry cash or cheques, and you can transact with a tap of your card.

Also, they’re widely accepted. You can use them for everyday purchases, travel expenses, and online shopping.

They offer the same level of convenience as an ordinary debit card, and they’re more convenient than cash.

We’re operating in a time where I don’t even see cash as real money.

If I spend cash to pay for something, it’s like I’ve bought it for free.

The money has zero impact on how much money I think I have.

Rewards

Many credit cards offer rewards programs that allow you to earn:

• Points

• Miles

• Cash back on your purchases.

You can redeem these rewards for:

• Merchandise

• Travel

• Statement credits

Which can help you save money in the long run.

Some credit cards also offer sign-up bonuses or special promotions for new customers.

You should do your own due diligence when applying for credit cards, to see what rewards you might have access to.

Build Credit

Credit cards can help you build credit and establish a good credit score.

This is essential for qualifying for:

• Loans

• Mortgages

• Other financial products

To build credit, use your credit card regularly, but keep your balance low and pay it off in full each month.

By doing so, you show lenders that you’re responsible, and are more likely to be approved for credit in the future.

The most important part of building credit is to never miss a payment.

Ensure you know exactly what you’re spending.

Protection

Credit cards offer protection against:

• Fraudulent charges

• Errors

• Disputes

At the end of the day… it’s someone else’s money, until you pay it off.

If you notice unauthorised charges on your card, you can report them to your issuer and have them removed.

You can also dispute charges for goods that weren’t delivered as promised.

This can provide you with peace of mind and protect you from financial loss.

This is arguably the biggest positive amongst credit card users.

You’re spending someone else’s money, and paying it off on a monthly basis.

If something bad was to happen (stolen card, fraud etc.) it’s not your money that it’s happening to.

There are plenty of reasons why credit cards are becoming increasingly popular.

If there were no significant positives… they wouldn’t exist, as nobody would be using them.

Drawbacks of Credit Cards

Despite this, it’s important to look at the downsides, and why many people still choose to stay clear of them…

High Interest Rates

Credit cards charge high interest rates, especially if you carry a monthly balance.

If you don’t pay off your balance in full each month, you could end up paying a lot in interest charges and fees.

To avoid interest charges, pay your balance in full each month or use a credit card with a low-interest rate.

The last thing you want is to be owing a sum of money which is continuing to compound due to high interest rates.

Make sure that you’re paying your balances on time.

If you don’t think you’re responsible enough to keep up with payments, it might be best to avoid.

Fees

Credit cards can also come with hidden fees, like:

• Annual fees

• Balance transfer fees

• Cash advance fees

• Late payment fees

These fees can add up quickly and increase the cost of using your card.

To avoid fees, read the terms and conditions of your card and understand the fees that apply.

Make sure you know exactly what you’re signing up for.

If fees are substantial, it’s unlikely that the provider will make it easy for you to see.

Whilst it’s a legal obligation to disclose everything, they’ll try to hide information from you.

Overspending

Credit cards can be tempting to use for impulse purchases or to cover expenses you can’t afford.

This can lead to overspending and debt that could take months or years to pay off.

To avoid overspending, set a budget for your spending. Only use your credit card for purchases you can afford to pay off.

Implementing these budgeting tips will also help.

Credit Damage

Using credit cards irresponsibly can make it harder to qualify for credit in the future.

To avoid credit damage, pay your bills on time and keep your credit utilisation low.

Avoid applying for too many credit cards at once. Or, closing old accounts, as this can also hurt your credit score.

Whilst a credit card can improve your credit score, it can damage it just as easily.

Temptation to Spend More

Credit cards can also make it easier to overspend. You don’t see the immediate impact of the spending.

You may feel less inclined to check your spending or stay within your budget.

This temptation to spend more can lead to debt that can be difficult to pay off.

We cannot stress the importance of budgeting. Or, at least acknowledging where your money is going.

Losing yourself financially is a downward spiral you don’t want to start going down.

False Sense of Security

Some credit card users may feel a false sense of security when using their cards.

This can be true for those who have never experienced unauthorised charges.

But, credit card fraud is a very real threat, and it can happen to anyone.

Check your account regularly and report any suspicious activity to your issuer immediately.

Credit cards can be a valuable financial tool if used responsibly.

They offer convenience, rewards, and protection. Also, they can help you build credit and establish a good credit score.

But, they can also come with:

• High interest rates

• Hidden costs

• The potential for overspending

• Falling into a never ending spiral of debt

Final Thoughts

It’s important to weigh the pros and cons and to use them wisely to avoid damaging your financial situation.

If you do decide to use credit cards, be sure to:

• Read the terms and conditions carefully.

• Monitor your account regularly.

• Pay your bills on time.

To maximise the benefits and minimise the risks.

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