What do you think of credit cards? They can be good, bad and ugly. Some may say credit cards are so BAD – you simply need to stay away from them, cut them up or freeze them.
Here’s my take on credit cards – the good, bad and ugly:
If you use credit cards wisely they can be good. Credit cards offer you more purchasing power (good/bad – keep reading), convenience and additional security. They provide you with an excellent opportunity to build a good credit history (payment history, debt/credit ratio).
Moreover, credit cards offer cardholders many benefits such as rewards (cash back, savings discounts), extended warranties, purchase protection and more. Be sure to get the most from your credit card benefits – 5 Ways To Maximize Your Credit Card Benefits.
Credit card fees and interest rates can really add up. The new Credit Card Accountability, Responsibility and Disclosure Act has limited the fees credit card companies can charge you. It also provides you with more disclosure of interest rate changes, fees and the true cost of paying the minimum payment only.
In addition to the costs you have to be careful about overspending, since you have more purchasing power. Research has shown that people tend to spend more money when they use a credit card instead of paying with cash. If you treat credit like money and use your credit card responsibly you can avoid this debt trap.
Credit cards get ugly when you fall into the debt trap. Credit card debt is one of the main reasons why people feel the need to cut up their cards and abandon credit cards altogether. According to CreditCards.com, “Average credit card debt per household with credit card debt: $15,788.”
Credit card debt gets even Uglier when you consider the real costs:
- Paying high interest rates on credit card debt
- Negatively impacting your credit report
- Financial distress from creditors, debt collectors and others
Credit cards are what you make of them. You can get the most value from your credit card when you choose the right card (great benefits, avoid cards with high fees/interest rates) and practice good money management habits (e.g. disciplined spending, pay off bill every month). After all, credit is money.