The Pros and Cons of Credit Cards

Credit cards are an often-disputed financial tool; some people think they are incredibly valuable while others absolutely refuse to use them. As with most disputed topics, there isn’t an easy answer to the question “are credit cards good or bad?”. Here are the pros and cons of having a credit card.

Credit Card Pros

• Using a credit card will build your credit history, helping you make larger purchases in the future (like a vehicle or home).
• Many credit cards offer rewards you can take advantage of, such as airline miles or cash back.
• Credit cards have a grace period of a few weeks each month between when you get your bill and when it’s due. If you pay your bill each month, that means you have about 50 days (your billing cycle + grace period) before you need to pay. This can help you manage cash flow throughout the month.
• Another advantage of credit cards is that they offer a level of emergency support. For example, if you have an unexpected car repair bill, you don’t have to have all the cash needed on hand (or deplete your emergency savings) to address the immediate issue. After that is taken care of, you can review your budget and make plans for paying off your credit card.
• In addition to the grace period, you can pay off a credit card over time. While it is not recommended to carry a balance month-to-month, in emergency situations credit cards provide flexibility in getting finances in order.
• Most credit cards offer a high level of theft protection. You can dispute charges if your card is stolen, and you aren’t liable for any of those purchases. Because of this level of protection, credit cards offer an advantage for online shopping.
• Many hotels or vehicle rental agencies put a hold on your card until you checkout or the vehicle is returned. When you use a credit card, the hold is just over a portion of your credit. If they allow it and you use a debit card, the hold would freeze money in your account — money you may need as you travel.
• International travelers also may find benefits in having a credit card, as international purchases are automatically converted to the owner’s currency and many have low or no foreign transaction fees.

Credit Card Cons

• One of the biggest cons of having a credit card is the easy access to more money than you have. Overspending is as simple as a swipe, and before long you could be in a large amount of debt.
• Credits cards typically have high interest rates (close to 20%). This means that carrying a balance month-to-month results in a high percentage of your payment going toward interest rather than paying off your debt.
• Some credit cards include annual fees, and the oftentimes incredibly long fine print can include some surprises (such as additional fees or rate increases). That’s not the case with every card, so be sure you know what you’re signing up for before you open a card.
• When you open a new credit card, you will experience a short-term hit to your credit.

Credit cards can be beneficial if you use them responsibly to access additional support, build credit history and take advantage of reward programs. Pay your card off in full and on time every month. Avoid putting things on the card that you can’t pay off immediately and avoid having too many credit cards. If you don’t think you can limit your spending to what you can pay off each month, or you already have a lot of debt, you may want to avoid opening a credit card.

If you have questions about the best way to manage your money so that you have a strong financial foundation, talk to a Farm Bureau agent. They can help you prepare for and protect your future.