A high percentage of American consumers have been seduced by the convenience of easy credit. Traditional habits of saving up for ones purchases have been abandoned in favour of credit card use which provides instant gratification. Credit cards offer both pros and cons which really depend upon how their owners handle them. Ironically the ones who benefit most from credit card usage are those who have no need to borrow. Managed responsibly they can be a helpful financial tool, whilst irresponsible usage leads to debt which can be hard to extricate oneself from due to high interest charges.
The biggest con of using credit cards is that it increases the price of goods for sale for everyone, whether they use credit cards or not. Retailers need to recover the merchant fees which the banks charge them for accepting credit card payments. Naturally the banks encourage the use of credit cards in order to reap the benefits of these interchange fees, and banks hope that the use of plastic in its various forms will lead to the demise of the less profitable cheques.
When used prudently by those who don’t need to use credit, and pay their balances down in full every month, credit cards have advantages. The best cards available to those with excellent credit offer generous cash back schemes and statement credits, though once again the cost of these rewards are often funded by retailers who need to further increase the cost of their merchandise.
Credit cards offer extended warranties, insurance coverage, and roadside assistance. They offer convenience and for those who pay their balances in full the interest rates are completely immaterial. Using credit cards wisely helps to maintain a high credit score which is vital in so many other areas of financial dealings, as well as renting a home and applying for jobs.
Those who need to use credit cards to borrow money to live from month to month suffer the cons of credit cards. High interest charges which accrue on balances increases the total cost of goods purchased. Many people who use credit cards are unaware of the real costs involved as fail to acquaint themselves with the terms and conditions, thus fault the card issuers who levy penalty interest rates and charges. Using cards for cash withdrawals is the ultimate con which could be avoided if more people simply understood the conditions attached to such usage.
When credit cards are used irresponsibly they can have a damaging impact on ones credit score, which it can take time to recover from. A low credit score affects the costs of future borrowing, whether it be on credit cards, loans or mortgages. It results in higher insurance premiums. Those who end up with a battered credit score from irresponsible credit card use may well find that the only lenders available to them are sub prime lenders. These can be prohibitively expensive. Ironically the cards which they offer are in great demand despite their high fees and interest rates of up to 79.9%.
Using credit cards to ones advantage is easy to do when there are funds available to cover spending when the payment falls due. Those who benefit the most put the bulk of their monthly expenditure through credit cards to receive cash backs which boost their bank accounts. For those who use credit cards as a way to borrow serious consideration should be given to the pros which can lead to debt and a tarnished credit reputation.