By Maddy Scheckel
March 6, 2023
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All around you, people are using credit cards.
They’re swiping at supermarkets. They’re tapping at gas stations. They’re clicking their way to online purchases.
In fact, more than 175 million Americans have an active credit card.
Something so common must be harmless, right?
But then you hear the horror stories about debt spirals and financial ruin.
So what’s up?
Are credit cards good or bad?
The answer’s actually “both.”
But I want you to come away with a fuller understanding, so I’ll lay it all out there. Here’s the good, the bad, and how you can beat the system.
Credit cards are super convenient for making online purchases.
Source: Unsplash
Pros of Credit Cards
1 – Convenience
With a credit card, everyday spending becomes a whole lot easier.
Buying groceries?
You can check out with just a swipe.
Paying utility bills?
Set up autopay and forget all about it.
Making an online purchase?
Your device should have your card on file, so you can pay with a single click.
All that convenience! All that ease!
That’s why when you ask, “Are credit cards good or bad?” some folks will respond, “Are you kidding me – they’re great!”
2 – Build a Credit History
Having a good credit score is important.
The higher your score, the easier it is to get a loan and do all sorts of other things.
Renting an apartment? Setting up utilities?
A higher credit score could help.
So what’s a great way to build credit history and improve your score? You guessed it – using a credit card.
But wait! There’s a caveat.
Your credit card will only help if you use it responsibly. Shop within your budget and pay off your balance each month? That shows credit bureaus that you’re trustworthy – and your score will go up accordingly.
3 – Access Rewards and Perks
Credit card companies offer all sorts of special add-ons to entice consumers.
Common perks include:
- Points you can redeem to reduce your balance
- Free flights and other travel-related discounts
- Access to airport lounges
- Protection for travel booking
These perks can add up quickly, which can save you hundreds or even thousands of dollars each year.
4 – Protection for Consumers
Nobody likes getting ripped off.
Credit cards make it easy for consumers to protect themselves.
Let’s say you notice a suspicious charge on your credit card statement. You can let the credit company know, and if everything checks out, they’ll reimburse you.
Cons of Credit Cards
1 – Easy to Overspend
When you’ve got a credit card, all sorts of exciting goodies are just a click or a swipe away.
No money in your bank account?
Who cares! You can shop till you drop with a credit card!
But then reality hits, and it looks like this:
- A huge credit card balance
- High-interest rates
- Ever-growing debts
So are credit cards good or bad?
Well, they’re certainly convenient. This is their best trait – and their most dangerous trait, too.
2 – High-Interest Rates
On average, credit cards charge an annual percentage rate (APR) of 19.07%.
That might not sound like a lot, but it can inflate your debt quicker than you’d think.
The good news?
You won’t pay any interest if you pay off your balance every month.
So, having a credit card requires a bit of strategizing:
- Good strategy: Control spending, pay off your balance in full and enjoy the convenience of a card without paying interest.
- Bad strategy: Spend beyond your means, carry a balance and get hit with interest payments that steadily increase your debt.
3 – Confusing Terms
Having a credit card can bring surprises that aren’t always pleasant.
You try to redeem your points on a bus ticket, then realize they can only be used for air travel.
You think you have a certain APR; then you see a higher rate’s been implemented because you missed a single payment.
Isn’t that kind of thing just the worst?
Credit card terms are often confusing, and it doesn’t seem fair that you should have to waste your time analyzing the fine print.
Unfortunately, digging through the dirty details is part of responsible credit card use.
And yes, it’s a bummer (even for personal finance fanatics like yours truly!)
4 – Easy to Fall Further Into Debt
If you’re asking, “Are credit cards good or bad?” It’s probably because you’ve heard about the nightmare scenario.
It goes something like this:
A happy consumer – let’s call him Kev – decides to take out a credit card.
Kev loves his card, and he uses it to make all sorts of purchases. Some are necessary. Others, not so much.
Kev gets his first statement, and he realizes he can’t pay the entire balance. So he only makes his minimum payment, thinking that’ll be enough. But he’s wrong.
Month after month, Kev spends with his credit card and then makes only the minimum payment.
His balance rises, thanks to the new purchases and the ever-present interest. Before long, Kev’s in more debt than he ever could have imagined.
Not everyone has this experience, but plenty of people do. That’s why it’s so important to use your credit card responsibly.
Are credit cards good or bad? They can be terrible if they land you in massive amounts of debt.
Source: Unsplash
Who Should Get a Credit Card?
Some questions have different answers depending on who’s asking.
For example: “Are credit cards good or bad?”
For some folks, getting a credit card is a total no-brainer. For others, it’s the first step toward financial ruin.
Not sure where you fall?
Here’s who should be getting a credit card:
- People who want to build credit history. Maybe you have no credit history, or maybe your score is in the dumps. In either case, responsible credit card use can help you get your credit score closer to where you want it.
- People who just turned 18. If you’re new to adulthood, it’s time to start establishing credit. Just be smart. “Sowing your wild oats” can balloon your debt in a hurry!
- People who want to fund a big purchase – and can pay the money back quickly. Some credit cards offer an introductory period with 0% APR – meaning you can borrow without paying interest. Just make sure you plan to pay off the balance within that period – often 6-18 months.
- People who like to travel. Many credit card perks are geared toward travelers. They have offers like discounted hotels and free flights. Just beware: This isn’t meant to fund the dream vacation you really can’t afford. It’s more of a helping hand for folks who are already traveling.
How to Use a Credit Card Responsibly
Are credit cards good or bad? It depends on how you use them.
Here are some rules to live by:
- Pay off your entire balance every month. This might not always be possible, but it’s certainly ideal. The equation is simple: paid-off balance = no debt.
- Stay as far from your credit limit as possible. A credit card lets you borrow up to a certain amount. But just because you can spend up to that limit doesn’t mean you should. Credit bureaus consider “credit utilization” when determining your credit score, so spending too much with your card can cause problems. Many experts suggest using no more than 30% of your available credit.
- Keep your credit card accounts open. If you’ve had a credit card for longer, it can help your credit score. That’s because credit bureaus like to see stability
Commonly Asked Questions About Credit Card Pros and Cons
Disadvantages of Using a Credit Card?
The downsides of using a credit card include:
- Temptation to overspend
- High-interest rates
- Confusing terms
- The potential to fall into a cycle of debt
Why Credit Cards Are Bad?
Credit cards can be bad when they’re used irresponsibly. If you don’t pay off your full balance each month, the remaining debt will grow because almost all credit card companies charge interest. This can get you into serious trouble if you’re prone to overspending.
Why Credit Cards Are Bad For The Economy?
Credit cards are both good and bad for the economy. They’re good because they promote spending, which is essential for economic growth. They’re bad because they produce debt for consumers – debt that comes with interest. If people are drowning in debt, they’ll end up spending less, which means less juice for the economy.
Advantages of a Credit Card
Benefits of using a credit card include:
- Convenience
- The ability to build a credit history
- Access to rewards and perks
- Protection against fraudulent or mistaken charges
Is Taking Credit Card Good or Bad?
A credit card can be good or bad, depending on how you use it. If you budget carefully and pay off your monthly balance, you could boost your credit score. But if you make silly purchases and maintain a balance, you could rack up some serious debt.
Is a Credit Card Even Worth It?
A credit card can be worth it if you commit to using it responsibly. The key is to know yourself and your habits. Think you can control your spending and pay off your monthly balance? Then go for it! You’ll appreciate the convenience, and your credit score could rise.
What Are The Negatives of Having a Credit Card?
The negatives of having a credit card revolve around falling into debt. Paying with a card is super convenient – making it easier to overspend. If you spend so much that you can’t pay off your balance, you can end up getting slammed with interest and falling into a cycle of debt.
How Do I Choose The Right Credit Card?
To choose the right credit card, you’ll need to define your objectives. Different cards are ideal for different people. Do you want to finance a purchase? Boost your credit score? Earn rewards? Once you’ve defined your goals, compare terms and decide which card matches your expectations.
Is It Good to Have a Credit Card and Not Use It?
Having an active credit card you never use is a bad idea. Using 0% of your available credit might sound like an obvious win for your credit score, but the company will eventually close your account – which will actually cause your score to go down.
Why Credit Cards Are Bad For College Students?
Credit card companies consider college students “high-risk,” so interest rates are usually elevated. That brings more severe consequences for overspending – but what college student would do such a thing!
Of course, credit cards can also help establish credit history. So, the decision comes down to the budgeting capabilities of the student in question.
