Credit Card Pros And Cons
Credit cards are valuable financial instruments but they are not without their drawbacks. While millions of cardholders rely on these products for purchases, financing, benefits, and rewards, a large percentage of cardholders are not happy with these products. Their detractors complain about interest rates, fees, and the propensity to become mired in debt. These advantages and disadvantages deserve closer scrutiny.
For many purchases, credit cards are the ideal method of payment. While it would be impractical and insecure to always carry large sums of cash, it is easy for people to keep one or more credit cards in their wallet. In this way, spontaneous or unexpected expenses can be accommodated without going home or visiting a bank. Also, as a method of payment, credit cards are quick and secure. We have all had the experience of waiting in line behind someone who is having trouble finding the cash necessary for a purchase, or a cashier who has run out of change. Other forms of payment such as checks also consume the time of both merchants and customers.
Credit cards also offer additional security. While lost cash is generally irreplaceable, and lost checks can be fraudulently used, a lost credit card is easily cancelled. Even when used fraudulently, Federal laws limit losses to consumers to $50, and even those amounts are usually forgiven. Credit cards also enhance consumer’s ability to keep records. With cash or checks, one has to manually record all purchases. On the other hand, credit card issuers produce online statements detailing charges and even year-end summaries.
Another benefit to using credit cards is bill consolidation, espeically with money saving 0% APR balance transfers deals. Instead of paying dozens of different entities, bills can be placed on a credit card, and payment single bill is all that is required. Finally, credit card users have grown accustomed to receiving valuable rewards in the form of cash back credit card benefits or loyalty points. Savvy credit card users can often realize as much as 2% or more in value per dollar spent in the form of rewards.
On the other hand, many cardholders find that credit cards are almost too easy to use. Once cardholders become unable to pay their balance in full, these products become not just methods of payment but methods of finance. As unsecured debt, the interest rate on credit cards is generally higher than mortgages and other secured debts. It is also not tax deductible.
By understanding both the benefits and drawbacks of using credit cards, customers can make the best decisions regarding these powerful financial tools.