Cash or Credit – What to Consider

Owning credit cards are a convenient way to pay for items we need or want, and offer one of the best ways to establish good credit. However, there are pros and cons to having credit cards.

Pros

Credit cards enable one to have the choice of not carrying around large sums of money at one time, and, therefore, less likelihood of losing that money. There is no recourse for the consumer when cash is lost. If a credit card is lost or stolen, one only has to contact the credit card issuer to report the loss and obtain a replacement card. When the card is stolen and used by an unauthorized user, credit card companies may require the original cardholder to be responsible for only $50 of the total unauthorized charges that may subsequently appear on the account.

Owning a credit card can help people establish good credit as long as payments are made for the amount due in a timely manner. If the balance is low, it’s advisable to pay in full on or before the due date in order to avoid interest being charged to the account.

The use of plastic form of payment is preferred instead of checks or cash by some establishments. Credit cards are accepted at most retail and department stores, grocers, pharmacies, salons, car repair shops, hotels, restaurants and airports. Credit cards can give people the peace of mind to be able to pay for unforeseen and expensive car repairs or replacements for high-priced appliances.

The unlimited number of websites on the Internet allows people to purchase items online in the comfort of their own homes. More and more people are purchasing gifts for birthdays and Christmas online. These purchases usually require payment by credit card if not using other payment methods like PayPal. Credit cards can also be used online to make reservations for hotels, concerts, cruises and vacations.

Many major credit card issuers offer discounts, cash back or cash rewards every time the consumer uses their cards. Department store credit cards will, at times, offer substantial discounts on store merchandise only when you use the store credit card at the time of purchase.

Cons

Credit cards can give people a false sense of financial freedom. Many people find they can’t resist a “good bargain” and buy things they may not need when credit cards are an available payment method. Some consumers own many credit cards and use one after another until they are “maxed out”. By overspending and becoming unable to keep up with the payments, they risk default. This, in turn, can result in card issuers leveling late fees, over-the-limit fees, and increased interest rates. Those consumers will be reported as bad credit risks.

In recent years, card issuers have raised interest rates even for consumers who have always paid in a timely manner. They give lower interest rates only to those with very high credit scores. The credit card companies have also added annual fees when none were accessed in previous years. Interest is levied on annual fees, late fees and over-the-limit fees.

All credit card companies set a minimum payment amount due on a certain day of each month when a balance exists. By paying just the required minimum payment, it can take years to pay off the card because of interest being added every month. Although these companies offer protection programs to cover your account in case of loss of income or death, the rates charged to your account to stay in the programs increase your balance and interest charged for that period.

When using credit cards to shop online, details of your card are not always embedded in a secure channel. Anyone can intercept data found on your card, and use that information, unless you do business only with websites that use a secured socket layer (SSL).

Credit cards are good to have as long as the cardholder does not spend more than what his or her budget will allow. Paying off low balances every month will save thousands in interest over the long term.