Using Credit Cards: The Good and the Bad

After the world's extended economic crisis, the perception of the word "credit" has become purely negative. Credit cards began receiving an even worse reputation than they already had prior. Having a credit card actually does offer quite a few benefits, but there are some drawbacks to owning one. The key to finding the best fit for you is always doing research.

Benefits of Having Plastic Money
1. Provides convenient payment. Today, people are less likely to carry large amounts of cash. For the most part, it isn't seen as safe or necessary. For instance, you no longer have to carry around a large sum of money when purchasing something like a computer, a cell phone, groceries, or even paying your rent (depending, of course, on the landlord). It's also quicker than buying with a check, saving you time at the store and the hassle of waiting for someone to make a deposit for it to clear.

2. It builds a credit history. Even if you're not entirely sold on having a credit card, you can easily increase your credit score by having one, making occasional purchases, and paying off your balance. In the future, it will make it easier to get lower interest rates on other loans, such as when you purchase a car or a home. For people who don't have a credit history, it's easier to start by getting a credit card through a department store, like Sears or Kohl's. These often have a high APR, so it's not advisable to keep a balance on them.

3. Some companies offer cards with rewards points, cash back, or airline miles. If you do your research, you can find companies that offer amazing promotions. Discover, Chase, and Capital One are well known for providing cards that offer one of the services mentioned. It's a nice way to be rewarded for the purchases that you have to make anyway, like groceries and fuel.

Drawbacks of Using the "Flexible Friend"
1. Carrying a balance increases the amount you actually pay for something. Because of the APR on a credit card, which is the percent of interest you accrue in a year for the balance on your card if it is not paid in full, that iPod Touch you bought for $300 will actually cost you much more. If you have to carry a balance, it is always in your favour to pay more than the minimum balance in order to avoid a higher charge; if that's impossible, then it's always better to find a card with the lowest possible percentage.

2. They come with bothersome terms and conditions. To be frank, most people do not read contracts in full before they sign them. Many people don't even know the terms before they dig themselves into a hole, making their lives more complicated. Even if you do read them, the legal jargon is nearly undecipherable. The best resolution to this is to ask questions of the company; they have to answer them clearly. If they don't, avoid them at all possible costs.

3. It is easy to build up debt to an unmanageable point. We're more accustomed to stories where people kept spending to their limit, leaving them to live paycheck to paycheck because it was too easy to spend money they didn't have. It is too easy to rely on a credit card as back up, especially during financial difficulties. Of course, this is entirely dependent on the person's ability to manage money. You might want to learn budgeting strategies and seek debt advice if you feel this is more likely to happen to you.