Are Credit Cards Bad?

Are Credit Cards Bad or Good?

Credit cards are a form of revolving credit that is usually the first type of funding that most people have access to.

Generally, credit cards can be helpful for emergencies and unexpected expenses. However, you may have heard about approaching this type of financial resource with caution. This is because credit cards can be financially disastrous if they are misused.

There are a few reasons for this:

●     Credit cards are a revolving form of credit, which can lead to a lot of debt: Since you are able to access as much money as you need through a credit card as long as you haven’t reached your credit limit, it can be easy to overspend. Once you do reach that credit limit, you can make a payment and then should be able to use it again. Revolving accounts can be dangerous if you don’t have the best spending habits, as a large amount of debt can accumulate quickly!

●     Generally, credit cards are more accessible when compared to installment loans: Credit cards are usually the first kind of credit product other than student loans that most Americans will have access to. And as an individual gets older, they will likely get even more offers. Most adults receive credit card applications in the mail even if they don’t inquire about them, or they may get emails or personalized pre-approval offers online. This can increase the temptation of applying for unnecessary credit. Visit this website to view some non-credit card options.

●     Credit cards have high interest rates that are compounding: Most credit cards have daily compounding interest rates, which means that interest is calculated daily and continues to accrue until your purchases are paid off. Generally, if you don’t pay off your balance by the end of the billing period, interest will be added to the total balance, including both the principal and interest rate.

On top of that, interest rates for credit cards can change, and they usually start pretty high, higher than other options such as personal loans. This can quickly cause a person to rack up a high balance and get stuck in debt.

Some Ways Credit Cards Can Be Useful

However, despite these potential disadvantages, when used in a smart way, credit cards can definitely be helpful in some cases:

●     They can help build credit with an on-time payment history: Making on-time payments with your credit card can help build a positive credit history. This is because payment history is the largest factor that affects your credit scores! For those just starting out, secured credit cards or low-limit credit cards can be a great way to build a positive credit history.

●     Credit cards can be helpful during emergencies: If you face a financial emergency and don’t have an adequate savings account, then an option like a credit card can be useful. This is because if you already have the card, you don’t have to apply for another credit account, which can take time to do.

●     They can come with rewards: Credit cards usually come with all kinds of rewards. Credit cards can typically come with cash-back rewards, travel, and specific vendor rewards.

●     Credit cards can make it easier to purchase large ticket items: Sometimes, the things we want don’t always fit our current budget. Whether it is an item of experience, saving up for an expensive purchase may not be practical, or you simply may not want to wait! A credit card can help pay for those out-of-budget purchases, which you can repay in small increments. Although, you should definitely be careful about doing this often!

So, What Are Some Best Practices for Using Credit Cards?

If you decide to use credit cards, knowing about some of the best practices/strategies for using them will be helpful. That way, you can get all the benefits without dealing with some of the pitfalls listed above. Here are some things to keep in mind:

●     Pay off your credit cards right after using them: One of the best things you can do when using a credit card is to pay it off immediately after use! That way, you can get any potential rewards without having to pay any interest. If you can’t pay them off right away, paying more than the minimum payment due will be helpful.

●     Improve your credit score as much as possible: Your credit will directly impact your credit card interest rates, so it may be worthwhile to improve your scores as much as possible before applying.

●     Take advantage of introductory offers: Many credit cards have 0% or low-interest introductory offers. These can be great for large purchases or for paying off other debt.