Are All Credit Cards Bad News?

by Justin Weinger on August 8, 2012

Once upon a time, credit cards were simple.  Each issuer produced a card with a standard set of properties.  Today, the market is flooded with credit cards offering multiple features, such as varying fees, interest rates and benefits.  Credit cards now vary from standard to secured, business to balance transfer, cash back to bad credit, travel and rewards. 

It’s true that credit cards can land you in debt, but if you do your homework and compare credit cards online, you may find a card that meets your needs.  Here’s what to consider when picking your plastic. 

Pros

  1. Convenience – you can use credit cards almost anywhere, in person, over the phone and online and pay off purchases in one go, or in monthly installments.
  2. Security – if you lose your card, it can be cancelled and you’ll be protected against its unauthorised use.
  3. Protection for large purchases – if your card is charged improperly or if item you purchase is not what it claimed to be, you can usually report the problem and receive a rebate.
  4. Immediate access – in an emergency, a credit card can be used to cover expenses that may otherwise be out of your reach.  You then have the flexibility to pay off the cost over time.
  5. Consolidation of bills – bills can be paid automatically via credit card, amalgamating several payments into a single lump sum.
  6. Rewards – many cards offer discounts, reward points or cash back.
  7. Record keeping – your monthly statement itemises your expenditure, helpful when it comes to budgeting.
  8. Build a solid credit history – paying off your balance every month is a great way to improve your credit rating.  While too much debt is considered a bad thing, if you show you can sensibly manage a credit card, you’ll be seen as a responsible borrower and it may be easier to qualify for a mortgage or lower interest rates.
  9. Simplify travel plans – credit cards are a safer way than debit cards of making hotel reservations, book plane tickets or renting a car.

Cons

  1. Interest payments – credit card interest rates are often much higher than interest for other types of loan, so even a small balance can quickly get out of hand.
  2. Minimum payments – these are not designed to help you pay off your card’s balance.  If you pay only the minimum every month you will see your balance increase steadily, even if you never make another purchase.  
  3. Penalty risks – beware of enticing interest rates which end after a few months.  A few late payments will raise the level of interest to an unmanageable level that you may struggle to tackle. 
  4. Reckless spending – a credit card can make the things you want seem within reach, when really they are not.  When high interest rates kick in, you could end up spending a lot more than the item is worth.
  5. Credit rating – credit card companies adjust interest rates according to your credit rating – just one slip-up and you could see your rating plummet and the interest you owe rocket. 
  6. Too many cards and lenders view you with suspicion.
  7. Credit card fraud is a possibility.

The golden rule of credit cards is to use them wisely.  Keep track of purchases, avoid overspending and pay off your balance regularly.

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