Don't Do Debt.com : Pros and cons of credit card use

Pros and cons of credit card use

A recent comment to this blog asked about the pros and cons of credit card use. Here are a few that come to mind:

PRO: Using credit cards can be used to build credit.
PRO: Credit cards can be used to cover a financial emergency.
PRO: You don’t have to ask for anyone’s permission to spend money or to open a credit card.
PRO: You can do or buy things you can’t ordinarily do or buy, such as traveling, paying for school needs, etc. (I’ve heard of some students who actually pay for their college and/or their books and supplies on credit cards).
PRO: You can earn incentives such as frequent flier miles, something useful for people who frequently travel.
PRO: For those with the “buy now, pay later” mentality, it seems the world is yours when it comes to your first and second credit cards.
PRO: Many people believe (as I once did) that credit cards help conserve your cashflow- meaning that if you charge something to a credit card, you don’t have to use your cash to pay for it.

CONS:

CON: While credit cards can be used to build credit, if they are not used correctly and with regard to your credit report, using credit cards to build credit can quickly backfire and do more harm than good to a credit report. It's important to understand the importance of paying on time, how to demonstrate positive money management, etc. I'd suggest that people should understand credit reports before contemplating credit card use.

CON: Being in debt is expensive. Once real interest rates kick in, minimum payments increase along with what it costs in interest every year. Having more than one credit card is especially expensive because you're obligated to pay interest and fees on all accounts in your name.
CON: Credit cards can prevent a person from learning how to demonstrate positive money management. When credit cards are part of a spending strategy, emergencies tend to get redefined and people unconsciously spend more on items that hold little value.
CON: Credit cards can make it difficult to budget your money.
CON: Credit card misuse carries great consequence on your credit report. If your credit reflects late payments and maxed out credit limits, it will be difficult to get approved to buy a car or a home. If approved, a person will pay for that credit report with higher interest rates on the loans borrowed to finance the car or home, which can add thousands to the cost of the purchase.

These are a few that immediately come to mind. Stay tuned for more updates and information about money, debt and more!

Posted by Susan Powell on February 20, 2004 at 01:17 PM | Permalink

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February 2004