Credit cards are a double-edged sword. On one hand, they can be useful for building credit and making small, regular purchases that you wouldn’t have the cash for otherwise. On the other hand, having too much available credit makes you spend more. Fortunately, there is no right answer when it comes to credit cards and their financial benefits or drawbacks; it’s completely up to you. The trick is knowing whether you fall into either of these categories. Do the downsides outweigh the upsides in your situation? Read on to discover if you are indeed a victim of your credit cards.
Pros and Cons of Credit Cards
The Pros of Having a Credit Card
Credit cards can be excellent tools for building credit. Having a longstanding credit card and making regular payments (even if they’re just the minimum) can help you boost your credit score. Credit cards can also be useful for quick cash in emergencies. If you find yourself suddenly in need of cash like if your car breaks down, you can borrow the money you need from your credit card account until you can pay it back. The interest you pay on that credit card debt will probably be higher than a bank loan. But it beats having to ask friends or relatives for emergency funds. Credit cards can be useful for making purchases you might not have enough cash for. For example, if you’re planning a trip and want to buy plane tickets or a hotel room. Or you want to make a large purchase online. You can use a card for added protection in case the item is counterfeit or subpar.
READ: Why Getting a Secured Credit Card is a Good Choice?
The Cons of Having a Credit Card
The biggest disadvantage to credit cards is the high-interest rates and debt. If you don’t pay off your credit card balance in full, you’ll have to pay huge interest. That might seem like a minor inconvenience, but interest rates on credit cards can be quite high—sometimes as high as 26% or more. That means if you don’t pay off the full amount of your credit card balance, the amount you owe will keep rising and rising. Having too many credit cards can also be a red flag to lenders and employers. Lenders may see you as having a higher credit risk. Employers may also see this as a red flag if you’re applying for jobs where the ability to get credit is important, like for certain government jobs.
Are You a Victim of Your Credit Cards?
We’ve already discussed some of the pros and cons of credit cards, but let’s take a look at how you can tell if you’re a victim of your credit cards. First, are you consistently paying off your balance every month? If not, you’re probably a victim of your credit cards. If you pay off your balance every month, that’s great. But if you don’t, you’re likely paying a very high-interest rate on the money you keep using and borrowing from your credit card account. If you’re like many Americans and have more than one credit card, you’re probably a victim as well. Credit cards are wonderful tools, but they can be dangerous if you don’t use them responsibly.
How to Break the Cycle
Know What You’re Getting Into
You should definitely know what you’re getting into if you decide to open a credit card. The first step is to figure out which credit cards best fit your needs. If you travel often, for example, you may want to look for a credit card with travel rewards. If you want a credit card that’s tailored to your specific long-term goals and financial situation, you may want to consider a credit card with a low interest rate. It’s also important to know what fees come with the card. If you plan on carrying a balance, you’ll want to look for a low-interest rate. If you’re only using your card to build your credit, you may want to look for a card that doesn’t charge an annual fee.
Pay Off Your Balance Monthly
The best way to break the credit card cycle is to make sure you always pay off your balance on time and in full. That’s the only way to avoid the high-interest rates that are built into the credit card industry. Credit cards can be great for helping you build credit, but only if you make sure you always pay them off on time. If you make a mistake, don’t panic. Credit card companies will usually let you make a payment plan to pay off your debt. That’s why it’s so important to make sure your payments are on time and in full. If you don’t, you’ll get hit with late fees and higher interest rates, which will only make your situation worse.
Credit cards can be useful financial tools if you use them responsibly. However, if you don’t know how to use them properly, they can become dangerous traps that lead to a cycle of debt. To break the cycle, make sure you know what you’re getting into, pay off your balance each month, and avoid opening new credit cards if possible. You can also consider switching to a debit card, which comes with fewer risks than a credit card.
Federico is an electronics engineer, financial blogger, insurance agent, and a certified investment solicitor. A multi-awarded financial advisor with clients ranging from lawyers, doctors, engineers, accountants, business owners, company directors, and OFWs to minimum wage earners had sought advice from him in achieving lifetime financial freedom.