Pros and Cons of Credit Cards

In the world of personal finance, whether or not people need credit cards is a hot topic. Many personal finance experts believe that credit cards lead people into unmanageable debt while others believe that credit cards used wisely can build a solid credit history. For many people, the truth is somewhere in the middle.

One reason that people initially begin using credit cards and other forms of consumer credit is for the convenience. One or two credit cards sitting in your wallet take up much less space than a wad of cash, and is much easier to carry around. Scanning a credit card is easier than going to the bank to withdraw cash when you need it. Consumer credit can also be a way to buy something that you need and pay for it a few weeks later when the bill comes due.

Some personal finance experts also consider credit cards to be a safer option than carrying cash. If you get mugged on the street one day any cash in your wallet is untraceable. By contrast, you can cancel several credit cards quickly and easily and not be liable for any fraudulent charges if someone else uses your cards without your permission.

For a younger person or someone trying to build a solid credit history, responsible credit card use can help. If you get a credit card with a small limit and charge only what you can afford to pay off each month, credit cards can help to improve your credit score. This will make it easier to get other forms of consumer credit like a mortgage and make the interest rate more favorable when you do.

Some credit cards actually can help a responsible user to make small amounts of money. Rewards credit cards offer bonuses in the form of cash rewards, airline miles or discounts at specific retailers. For a user who pays off her credit card bill every month these rewards can be a significant benefit to having a credit card. However, if you run any balance at all on your credit card the interest payments will be much more than any reward you could earn.

As for the cons, well the recent economic downturn and consumer credit crunch were all people needed to see the disadvantages of credit cards. The "buy now, pay later" model for consumer credit enabled many Americans to accumulate amounts of credit card debt that were difficult to impossible to pay back. With credit card interest rates at 20% or more, paying down large credit card balances can take years and cost thousands of dollars in interest. If you worry about whether or not you can pay your credit cards off or whether you can use them responsibly the best solution may be to not get a credit card at all.