Credit cards as a convenient financial tool – Are they a boon or a bane?

Credit cards have become the most convenient financial tools in our pockets. While some people are using their credit cards in the right manner, majority of them are misusing them, henceforth leading to the sea of credit card debt that our nation is drowning in. Despite being called as the nasty little debt generators that are spoiling an entire generation, there are experts and financial analysts who think that credit cards can even be a blessing in disguise. Are credit cards the solution to all your money problems? Or could credit cards be the root of all problems? Most of us have gone through tough times while paying cash for a home, or a car and this is when we’ve thought that credit is generally a better way in which we can materialize our dreams.

However, taking on debt to buy a home or a car is a far different situation from using credit cards to purchase things that you can’t afford or that you don’t need anyway. That’s indeed a fast way to overwhelming debt and most of us want to avoid such a nightmare. We’ve made the transition from the generation of our parents, taught savings and watchful money management by their own parents who have lived through the Great Recession to a society that anticipates instant gratification. But we are different and we want everything now! Instead of teaching our children to be patient about money, we gift them with credit cards so that they can pursue their dreams. This is perhaps not the right way out!

Learning the pros and cons of credit cards

The ease of swiping and whipping your plastics for a particular purchase has its benefits and disadvantages. It might either help the user when handled properly or become a detriment. When you’re able to pay off your bills on time and every month without carrying over a balance, credit cards can indeed be of great convenience. However, on the other hand, they can also land you up in high interest debt. This mostly happens when you’re unaware of the terms and conditions of the credit card agreement and when you fail to read through the fine print. Check out some pros and cons of using credit cards.

The pros of credit cards:

  • The best feature of credit cards is that you can use them practically everywhere, including overseas and abroad.
  • Using credit cards instantly boosts your purchasing power as they can easily be used for purchasing goods and services over phone, online and through mail. Hence, you can purchase more with credit cards.
  • Credit cards offer financial backup in the event of an emergency, like an unpredicted healthcare cost, unexpected auto repair costs and job loss. Even when you don’t have liquid cash, you can use your credit cards.
  • Credit cards allow you to buy items and then pay them off gradually in monthly instalments. You can get discounts at different stores and other rewards too. For example, when you buy something with credit cards, you can collect points, these points will sum up and you can use them to receive free items like airline tickets.
  • There are even some credit cards that can offer cash back as an incentive for using that particular card.
  • Credit cards can build up your credit history when used properly.
  • With credit cards, you can keep a record of your expenses, thereby helping you to monitor all your financial activities.
  • When you pay down your balances on time, they also help you raise your FICO credit score.

The cons of credit cards

  • Credit cards have their own disadvantages, especially when they are used in an unwise manner.
  • There are some consumers who feel forced to spend more money than they have and this is when they start misusing their credit cards.
  • While using credit cards, consumers can continuously roll over their balance for several months and thereby incur debt.
  • When you fail to pay your balance on your credit cards, you are even charged with late fees, interest rates and other hefty charges which increase your debt load.
  • When you carry a large amount on your credit cards, this is something that isn’t favorable in the eyes of the lenders.
  • Acquiring too much credit card debt can also ruin your credit score.
  • Credit card fraud is also a likely possibility.

If you wish to avoid the pitfalls of credit cards and enhance their benefits, you should keep track of your purchases, closely review your monthly statements, follow a strict and tight budget and make a serious effort to pay off your balances in full at the end of the month. Even then if you incur debt, you can always take out debt consolidation loans and use the proceeds to repay your debt.

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