Credit Cards

Should You Get a Credit Card?

So you are thinking you might want to get a credit card? Just like any other financial product, you should carefully think about the decision before making it. This website and others can help you do that and help you decide if a obtaining a credit card is the right financial decision for you.

Credit cards are open-end loans provided to you by the credit card company which can be accessed by a specific credit card. The account has a credit limit which is the maximum amount of credit or money you can obtain from the lender. Because it is an open-end loan, you can continue to obtain additional money through the credit card as you pay down the balance you owe. You access your available credit by using the card to make purchases, pay bills, or take a cash advance. Most people are familiar with how credit cards work. They can be a great financial asset. However, credit cards can be easily misused also. Fully understanding how credit cards work and using them correctly enables credit card holders to make use of this valuable financial tool.

The first question regarding credit cards is whether you actually need a credit card. As with any financial product there are positive and negative aspects to having a credit card. When deciding whether to obtain a credit card, you should review the list below and weigh the pros and cons to determine if a credit card is right for you.

The Positives

  • Credit cards are a widely accepted form of payment making them extremely convenient to use. They are accepted in face-to-face transactions, as well as with online transactions. They are also widely accepted in telephone transactions.
  • Credit cards are generally safer to carry than cash, especially cash in an amount equal to the credit you have available through the credit card.
  • Credit card companies often provide protections to the customers. Typically, if your credit card is lost or stolen, you can quickly cancel the card so someone cannot use the card. Also, if you have a dispute with a merchant about the quality of a product you used your card to purchase, credit card companies will allow you to withhold payment while you resolve the dispute.
  • Credit cards require monthly payments towards the balance. Often the cards provide a grace period before interest begins to accrue on the balance. So if you pay off the balance during the grace period, you essentially get the use of the money without having to pay interest. In this way, the card can operate like an interest-free loan.
  • Credit cards can be extremely helpful during emergencies: car repairs, medical emergencies or other problems in life that require significant cash quickly.
  • You're able to easily track your personal expenses for budgeting by using a credit card statement. Purchases can be identified by category so you'll know where your money is going. Recordkeeping is easier than if you use cash.

The Negatives

  • Many credit cards have high interest rates and fees. Not paying off the balance in full each month will result in increased debt. Continuing this cycle can drive you deeper and deeper into debt when interest and fees are added to your balance. The monthly payments will start to increase. The interest and fee accumulation can make it harder to pay off the balance.
  • The convenience of credit cards can drive you deeply into debt if you're not careful. High credit limits can induce you to overspend and give you a false sense of security because you don't realize the money is spent right away.
  • Having a large number of credit cards in your name might hurt you when you apply for additional credit, such as a car loan or home loan. If creditors see too many lines of credit, they may deny your application, because they think you're overextended and can't meet all of your credit obligations. Keeping track of that many cards can also become a problem if they're lost or stolen.