A credit card is a small plastic card issued to users as a system of payment. It is believed that the first real use of a credit card began in the 1920’s and since then there are currently 609.8 million credit cards held by U.S. consumers. (Source: “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010). Unfortunately, not all of those credit cards are used responsibly as the average credit card debt per household is $14,750. If used correctly, credit cards can be very helpful and almost mandatory. However, once misused, credit card debt can consume a person’s life and make it almost impossible to live debt-free again. Below, you will find pros and cons of a credit card, which once applied to your life, will help you live within your means.
Pros of A Credit Card
1. To Leave the House or To Not Leave the House
We live in a world of technology and ease. Last year alone, Amazon.com had net sales of $34 billion (Source: “Amazon Sales and Profits Boom in 2010”, Internet Retailer, January 2011). Without credit cards, that number would have been much closer to zero. Credit cards allow for people to shop in the safety and comfort of their own home.
2. “Everything But The Kitchen Sink” Purse
A credit card is much easier to manage and pack. You do not have to worry about shoving all those hundred dollar bills into your wallet, purse, or back pocket. The credit card slides easily into any compartment and you are out the door without any fuss or back-pains for having to carry around that ginormous bag.
3. Sleeping Down in a Van by The River
A credit card is often needed in order to reserve a hotel room and/or car rental. Without one, you will must likely have to take your chances that your favorite hotel that is right next to your favorite destination is not all booked up. But oh wait?! You forget that Justin Beiber is just playing minutes away and the city is overrun with teenyboppers with credit card yielding parents who booked your their hotel months ago. Looks like it’s going to be an hour long commute for you.
4. In Case of Emergency
It is recommended to have 3 to 6 months of your pay in saving in case of an emergency. Well, what if your emergency is two-fold; your car just broke down and you have no savings? Credit cards can be very useful if there is an emergency. It can be a quick fix to a big problem, and as long as you payback your date on time and within the grace period, you want even have to worry about high interest rates.
5. The Importance of Having Credit
A credit reputation is often needed when it comes to buying a house, a car, large appliances, or other necessities that the average person can not cover with just cash. Building up credit, as long as you are responsible and pay your bills, can be the one extra umpf that helps you make that big purchase item.
A personal sidenote: I made it 19 years without any credit debt, or credit card. I worked, I saved, I bought. However, one day I decided I wanted to buy a car, a little outside of my wallet’s reach, but I figured I could just get a loan and it would all be okay. However, when I applied for the loan I had no credit history and therefore the bank had no idea rather I would be a responsible costumer. (Apparently, warm eyes and a soft smile does not always cut it out in the business world.) My parents, with their good credit score, had to co-sign with me. Thankfully, I had parents who were willing to take on the risk and trust in me…jokes on them as I’m currently writing this in Mexico…just kidding!
The Cons of a Credit Card
1. Swiping Credit Cards does not create Carpal Tunnel Syndrome.
While the idea is easy to remember, “only use your credit card if you will actually be able to pay for it in cash”, it is not always so easy to follow. Most people have a hard time resisting the quick swipe of a credit card in order to make that impulse buy. If it’s not green cash leaving your hand, it never seems quite that painful.
2. Up the Ante
If you begin to accumulate credit card debt and cannot not make your payments on time, you are no longer just buying your product. Late payments can create late charge fees and increase your interest rate, forcing you to pay a lot more than what the product initially cost.
3. The Bare Minimum
Often credit cards can seem enticing when they tell you that regardless of the debt you have acquired you only have to make a low payment of $19.99 per month til it’s all paid off. What they aren’t always telling you is that while you are only paying the bare minimum, the credit card is taking on a 18% interest on whatever is not being paid off. So, while that $19.99 isn’t looking so bad this month, do you really want to be paying it for the next 70 years?
4. Identity Theft
A left-behind, lost credit card can do a lot more damage than a twenty dollar bill that fell out of your pocket. A credit card can be a thief’s best friend and if you are not a person who likes to constantly check up on your statements, it could be a while before you realize you are paying off another person’s Porsche and CD collection.
5. Credit: Friend of Foe
While it was established in the pros, that not having credit can keep you from an item you really want, the same is true if you have too much credit. If you have been irresponsible with your credit cards and have a bad credit score, it can keep the banks or lenders from allowing you to make purchases like a house or car.
Bottom Line: Always read the bottom line. Seriously, find out the interest rates and shop around before you choose a credit card. But you should do just that, choose a card. A credit card is a necessity in today’s world, however be responsible with it and only make purchases you know you will be able to pay off. Good luck and safe shopping!
“Amazon Sales and Profits Boom in 2010”, Internet Retailer, January 2011, http://www.internetretailer.com/2011/01/27/amazon-sales-and-profits-boom-2010
“The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010, http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php