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If you are deliberating about whether or not to apply for a credit card, you should know that a credit card in not an absolute “must have” key to a happy and fulfilling existence. While a carefully chosen credit card can definitely be an excellent financial tool to have at your disposal, plastic has been known to give more than a few people headaches.
Since there are many compelling advantages as well as disadvantages to carrying a credit card, it makes sense to sit down and consider them altogether so you can be sure to make the most informed decision.
Let’s start with the positive:
They are convenient.
Not only is paying by credit card easy, but it is arguably safer than using cash. If you lose your money or someone steals it, in most cases it’s gone forever. However, if someone takes your card and racks up a bunch of fraudulent charges, you will not be held responsible for them. Likewise, should you need to rent a car, it is much easier to use a credit card to secure the reservation as opposed to using a debit card, which ties up actual cash in your checking account. A credit card functions as a short term loan so that you can buy things, as opposed to a debit card which requires you to already have the entire purchase amount socked away in your checking account. As long as you pay off the balance for what you charged by each statement’s payment due date, and you will not have to pay any additional finance fees.
They provide protection.
If you order something online that never turns up or it isn’t what you expected, you can always call up your credit card company to dispute the charges if the seller refuses to reimburse you. With cash or debit card payments, this is not an option.
Some credit cards come with perks.
Rewards credit cards do just that – offer the possibility for the cardholder to accumulate reward points for every dollar spent on the card. These points can be redeemed for all sorts of things -airline tickets, various merchandise and sometimes even cash.
Now, the not-so-positive:
Credit cards make it easy to slip into debt.
Because you are given the option to pay off your credit card balance a little bit at a time and roll the remaining balance over to the next billing period, it is all too easy to become overburdened by debt relatively quickly. Interest accrue on whatever part of the balance that rolls over, so your bills grow larger even if you don’t make any new charges to the account. This can make repayment difficult. You have to stay organized and on top of your bills to make certain you are meeting your payment obligations on time. You also run the risk of ruining your credit score if you make late payment or default on what you owe. Credit card companies report all your account activity to one or all of the three major credit bureaus, which keeps tabs on everyone’s credit activity and issue credit scores. A low credit score can seriously hinder any attempts to secure a loan in the future.
Credit can be difficult to obtain.
If you don’t already have an established credit history, it may prove challenging for you to get your first card. It is likely that you won’t qualify for a card with an attractive rewards program right from the start. Your first card may have to be a secured card, which will require you to use some cash as a deposit. Other options may be to have someone you know with good credit cosign for you or apply for an unsecured card with an annual fee.
If you put some forethought into getting a credit card before you apply, you can be sure to find the right card for you!