Credit cards have become prevalent in society. They are used to make payments, whether through purchases, paying for services or making payments on an account. Credit card purchases or payments tap into credit lines. The amount of credit available for a particular card can vary. For some people, credit cards can be helpful in navigating through family financial decisions. For others, credit cards can be lead family finances into a downward economic spiral that results in bankruptcy or foreclosure on a home. When thinking about applying for a credit card, it is useful to think about the pros and cons first.
Pros
A credit card can act like a free advance of money if the bill is paid on time. No interest will accrue. Many credit card companies insure purchases, so that items can be replaced if stolen or lost. Credit cards can also help to rebuild credit scores. Credit scores are calculated in part on credit history, so if there is a history of credit and bills getting paid on time, the score will increase. Many credit cards also have travel insurance when the cards are used in conjunction with travel. Also, some online purchases, hotel bookings and car rentals require the use of a credit card to make a purchase, although debit cards from banks accounts can also be used. Credit cards can also assist with the analysis of monthly spending habits by examining monthly bills.
Cons
One of the main drawbacks of credit cards is the temptation to spend more than is prudent. Because bills are not due until later, there can be a temptation to believe that money will be earned later to repay the credit debt, but situations arise that prevent the repayment. Another con is the potential for an escalating interest rate. These can occur when payments are missed and other situations. Increased interest rates can raise monthly minimum payments. There are annual fees with some credit cards, too, which is a con. Cash withdrawals generally must be repaid at interest rates higher than credit purchases.
Other Points
Some credit card companies offer teaser rates. It's important when applying for a credit card to completely understand the terms of the credit agreement. Credit counseling services can provide helpful advice for people who get into financial trouble with too much credit card debt. Budgets can be useful tools when knowing how often credit cards may be used.
Member Comments