Like most loan products, credit cards can often help you by offering financial shortcuts, but it’s important to be aware of their potential pitfalls. Many factors can affect your credit finances – from your choice of credit card to your spending habits – for better or worse.
Benefits of using credit cards
Create a credit history: Those who use credit cards responsibly can enjoy improved credit ratings over time. A good credit rating makes it easier to rent an apartment,
Quickly access emergency funds: Even if you don’t use , having one on hand can be useful in a pinch. If you need a household maintenance repair or an unexpected car repair, for example, you can finance it regardless of your balance. The can also soften the blow via rewards or special funding.
Buy expensive items over time: You are not obligated to pay for all purchases by the due date, although it is preferable to do so. Alternatively, someso you can pay off a large purchase over time while avoiding interest.
Easily track your expenses: Credit cards allow a detailed record of your expenses. Many credit card issuers offer customizable views of your spending online or through their apps, but a full record of your monthly spending will also be available on your monthly credit card statement.
Awards: With the, you earn points, cash back or miles on all your expenses. Many awards meaning all you have to do is spend money to earn rewards in the form of statement credits, travel and more.
Purchase Protection: Offered by some card issuers, purchase protection can help you get your money back if your purchase is damaged or stolen. Coverage varies by card issuer and specific card, but generally includes new items that are damaged, defective, or stolen within 60-120 days of your purchase.
Convenience: You don’t need to carry cash or checks with you to shop or pay bills. You can simply swipe your credit card or enter the information online.
Consumer protections: Credit cards can offer fraud protection, extended warranties, price protection, damage and theft protection, and travel and rental car insurance.
Disadvantages of using credit cards
Temptation to spend too much: You can spend up to your card’s credit limit, which often means you can spend more money than you have. It’s important to watch your spending and avoid impulse buying. You should treat a credit card as if it were cash.
Interest charges: If you’re not careful, any balance remaining on your credit card past its due date will incur interest charges.and can get you stuck in the cycle of debt.
Cash advances: If you needed to withdraw money from your line of credit, you would do so via a cash advance.are notoriously expensive, as there are upfront fees as well as a hefty APR applied to the balance. are generally much cheaper than cash advances.
Costs: Credit cards can incur a number of charges. You can usually avoid annual fees by choosing your credit card accordingly, but there are also, late fees and more to watch out for.
Can hurt your credit: If you’re not careful, a credit card can sink your credit much faster than it can build it. Make sure you keep an eye on your account and pay your bills on time. Along the same lines, applying for too many credit cards in a short time could hurt your credit.
How to use a credit card responsibly
There are some things you can do to make your credit card work for you in the best possible way, regardless of the pros and cons. You should always watch your expenses and bills carefully to ensure that there are no erratic charges and that you are not going over budget. You should also always ensure that you pay your bill on time and in full. Ideally, your credit card balance should stay below 30% of your credit limit at all times. Try to avoid expensive options like cash advances or revolving balances, and take advantage of rewards and other benefits as much as possible.
The bottom line
Although credit cards have many advantages, there are also potential disadvantages to consider. If you are not disciplined, you risk overspending and accumulating debt. Also, credit cards usually have high interest rates, which can make it difficult to pay off your balance. But if you choose the right credit card and develop an appropriate strategy, a credit card can help you achieve your financial goals.
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