You may have received a notice in the mail that you are pre-approved for a credit card or you're considering applying for your first credit card. We have created a list below of the pros and cons of having a credit card. We have a good understanding of how credit cards work and want to provide a few tips before you take the step of getting a card.

Like so many things in this world, there are pros and cons, even with a great product like a credit card. For many, credit cards are a must for payments on car rentals, booking flights, vacations and online purchases that require a credit card. For others, credit cards can be a strain on personal and family finances. Here is a list of the Pros and Cons of credit cards.


Pros of Using Credit Cards

Credit Card Rewards: Many credit cards offer a rewards program. Popular rewards include travel rewards points and cash back programs. Some retailers offer credit cards with discounts at their stores. I personally have a visa credit card that offers travel miles for every dollar spent. This card costs $120.00 per year. I also have another business credit card that offers cash back annually and this card is no charge. We use this card for business to stay away from tax issues with air miles benefits for employees. We like having both cards for booking trips and using the cashback card for business.  

Convenient: Credit cards are accepted by almost every business worldwide in retail stores and online. Traveling with a credit card can simplify your trip for payment at hotels and in restaurants. In many countries, it is difficult to use a debit card and converting cash can is also difficult. 

Purchase Protection: There are many types of purchase protection with credit cards. Some offer car rental coverage, out of country medical coverage, travel insurance, loss or theft insurance. Ask the credit card provider what types of purchase protection they offer. 

Identity Theft Protection: If someone steals your credit card, the money taken may not be charged against you. Check the wording of the credit card provider and make sure you understand their terms and conditions around identity theft.

BookKeeping: With your credit card statement every month, you receive a complete breakdown of every purchase. Some companies provide a company credit card while others let you use your credit card and expense the cost to the company. It is very easy to copy or scan your statement for employer reimbursement. If you have a problem with something you've purchased and cannot find the receipt, in many cases your statement is online and you can show the retailer the item on your statement right on your smartphone.

Your Credit Score: If you pay your credit card bill on time and do not overuse the card, it can be a positive for your credit score. The rule is to use credit to 30% of its capacity. Example: If you have a $1,000.00 limit, use $300.00 of this credit facility. It shows that you can manage credit and this can improve your credit score. We recommend setting up auto-withdrawal for at the least the minimum payment every month. You can always pay more or all of the bill. You will never miss a payment. Credit card companies are first to report to credit bureaus so as long as you use the card responsibly, they are a great tool.

Cash Advances: Credit card companies offer the ability to take a cash advance. We never recommend anyone to use a credit card in this way but the service is still there is your stuck. Most credit card companies charge a fee for this service and will start charging interest on the cash as soon as you make the withdrawal and the charges will be at a higher interest rate. If you need cash and you have no other way to pay other than a cash withdrawal, immediately go pay off the cash balance on your credit card. This is a dangerous tool if you are struggling with debt.

Cons of Using Credit Cards

Cash Advances: As mentioned above, there are fees charged by the credit card company for taking a cash advance and the interest rate is even higher than normal for this service. We recommend never taking a cash advance and even better have this service removed from your card.

Your Credit Score: Credit card companies report to the credit bureaus like all other loan providers. If you are irresponsible with your credit card, it will drive your credit score lower and this will cost you money for all loans products. While credit cards are very convenient, they are also the most common item we abuse.

Interest Rates: There is a cost to convenience. Most credit card companies charge close to 20% if you do not pay off the balance every month. If you are planning on getting a credit card and thinking of using your credit card as a way of borrowing money, we recommend you do not get a credit card. The credit card is meant to use on a monthly basis and pay it off every month. Carrying a balance will hurt your credit score and cost you a great deal of money over time.

0% interest cards: Credit Card companies offer incentives to get you to use their credit card. 0% interest for 12 months and free travel miles are only a few of the items companies must get you to sign up. Like all free things, they come with a price. This 0% interest card will eventually start costing you interest every month. Pay it down on a regular basis so you do not get caught with a large payment you cannot afford.

Conclusion: Credit cards are very convenient to have if you can be responsible. Speaking from experience, it is really easy to overspend with a credit card. Take your time searching for a new card, there are literally hundreds to chose from. A great place to start is with your current bank or Credit Union because they will tie your card to your existing account. You can see your statement altogether.

Our recommendation: If you are not earning enough now to manage your current monthly payments easily and comfortably, do not get a credit card. You can manage your finances a lot better with cash and debit cards until you are in a stronger financial position.

  1. Average Household Credit Card Debt WRAL acquired may 2018 - Average Household Credit Card Debt