Credit cards have a bad reputation and rightfully so, but credit cards can be useful if used responsibly and with prudence. Here are my 5 pros and cons on credit cards.
Pro: One of the best reasons to use a credit card is for rewards. Many credit card issuers have great rewards programs, particularly for travelers. Just recently, American Express was offering a bonus miles program that secured me enough miles to upgrade a planned family vacation for four from coach to first class seating!
Con: The same program, however, may come with some significant annual fees. Many American Express cards charge in excess of $50 and sometimes over $100 annually for their high-end reward programs. My daughter recently was assessed a $79 annual fee for her American Express card. She promptly cut up the card and closed the account knowing that she was not going to be able to afford to spend enough to really take advantage of the program’s rewards.
Con: Credit card spending can quickly spiral out of control resulting in huge balances owed. If these balances cannot be paid in full each month, credit card companies are happy to take your money in monthly interest charges on your outstanding balance. That outstanding balance can grow very fast. I know as a new college graduate, I racked up huge credit card bills furnishing my first apartment. I found myself making minimum payments, making little more than a dent in my outstanding balance until I really got disciplined in my spending and was able to pay the balance off. I make it a rule to always pay my credit cards in full every month.
Pro: And paying your credit card off, in full, every month gives you the convenience of consolidating your spending, but requires self-discipline. The best part about paying your card off in full every month is the satisfaction of knowing that my credit card company is not making extra money off of my account.
Pro: Credit cards used wisely can help someone establish a good credit record in their name. Every major credit card issuer reports their outstanding cards and balances to the major credit bureaus on a regular basis. A credit card account, used responsibly, can show other creditors that you can responsibly handle credit and can have a positive effect on your credit score. However, “too many” credit cards harm your score, so “more is not better” in the case of credit cards.
Credit cards, used wisely, can be beneficial. I have laid out five examples of benefits and risks from credit cards. Ultimately, the message should be that credit cards are not bad and to use your credit cards wisely.