Giving Credit Where Credit is Due

For better or for worse, credit cards are the financial tools of our age. Even vending machines nowadays have a slot you can swipe your American Express card in. There are a lot of advantages and disadvantages to credit cards. Listed below are five point/counter-point pros and cons of using “plastic”:

1. Convenience vs. Craziness
Credit cards are the ultimate in spending convenience. No need to count out cash, no need to write a check, credit cards these days are a faster and easier method of payment than anything else. However, that also makes it very easy to over-spend on a credit card: going “swipe-crazy” can really add up on your bill, especially if you swipe for every can of soda or stick of gum you come across.

2. Building Credit vs. Breaking Credit
Your credit rating is a measurement of your financial accountability. If you want to apply for a big-dollar loan to buy a house, for example, banks look at your credit rating to decide if you can be trusted to pay that kind of money back eventually. The irony is that it takes credit to make credit; that is, making purchases on your Mastercard or VISA and having a long, reliable record of paying off the balance will help your credit rating. On the other hand, if you miss payments, or fail to make the minimum payments every month, that will reflect on your credit, too.

3. Paying Now vs. Paying More Later
A lot of people don’t have a few hundred dollars ready to go to buy a big-ticket item, like a bed or a computer. With day-to-day expenses, some people can go months before they have that kind of money saved up for a big purchase. So what do you do if you need a new bed right NOW? You use a credit card. The trade-off is that you’ll have to pay even more later. A credit card with a bad APR(Annual Percentage Rate, the amount of interest you pay on your debt per year), can have you paying significantly more than if you just buckled down and saved up the old-fashioned way.

4. Security vs. Insecurity
If a thief steals your wallet, your cash is gone. It’s never coming back, the money is lost. If the thief steals your credit card, however, you can call Discover, or American Express, or whoever your card is through, and tell them the card is stolen. The bank will cancel your card, issue you a new card, and will track attempts made by the thief to use your old card. In that way, credit cards are a safe, secure way to keep your finances in order. But with new opportunity comes new crime. Identity theft is not a new phenomenon, but in this day and age of credit card micro-transactions across the Internet, it is a very real danger that a hacker can get a hold of your credit information. If you do not keep a close eye on your monthly credit card statements, an identity thief can utilize all the comfort and convenience of your credit cards, and leave you with the bill.

5. Free Bonuses vs. Hidden Expenses
Many credit cards offer excellent incentives for spending on them. Some credit cards will give you coupons at certain stores, discounts on gas, frequent flyer miles…there’s even a VISA card out there that will give you free subscriptions to World of Warcraft! But there are just as many hidden expenses in credit cards as there are incentives. Penalties for over-spending, penalties for late payments, transaction fees, finance surcharges…some cards even charge an annual fee just for HAVING them!

In closing, credit cards are a modern convenience that offer you, the consumer, an awesome power: the ability to spend quickly, conveniently, and instantly, at home or around the world. But, as Spiderman was once told, with great power comes great responsibility. Reckless spending, willful ignorance, and bad decision making can make this modern convenience a modern nightmare.