Are Credit Cards Bad?

If you are thinking about applying for a new credit card, you might be asking yourself, “Are credit cards bad?”

Like any other loan option, credit cards do have their own set of pros and cons. When used conservatively and strategically, credit cards can help you get cashback rewards for certain purchases and other nice perks. However, it can be tough to manage a new credit card! Continue reading to learn more about the advantages and disadvantages of credit cards.

Some Disadvantages of Credit Cards

Here are some things to keep in mind when it comes to the dangers of credit cards:

• High Interest: Most credit cards come with compounding interest rates, which means that there will be interest charges on top of the amount you borrowed and the accumulated interest. Because of this, if you get to a high balance, you will be paying a lot of interest!
• Overspending: Because credit cards are revolving accounts (accounts where you can borrow from multiple times and then pay to use again), it can be easy to overspend. Credit card spending can quickly get out of hand, especially if you have multiple cards, so make sure you have good spending habits before you decide on taking out one or more credit cards to avoid having excessive credit card debt.
• Can Hurt Your Credit Utilization: Credit cards are revolving credit accounts, and that can impact your credit utilization rate in more than one way. Whenever used, they will affect the total amount of debt you have and lower the amount of available credit you have, which hurts your credit utilization ratio from both sides.
• Annual Fees With Credit Cards: Some credit cards have annual fees, which can sometimes be a surprise if you weren’t expecting them. Depending on the type of card, these annual fees can be anywhere from $50 to a few hundred dollars, so keep that in mind!

Some Advantages of Credit Cards

Here are some advantages that can come with credit cards:

• Low or 0% Interest in the Beginning: You may get introductory 0% interest rates with some credit card companies.
• Fairly Accessible: Even with bad credit, you may be able to get a credit card that has a low limit. And most of the companies operate online, making it easy to apply.
• Reward Options: Credit cards usually come with all kinds of rewards. Take a closer look at some of the common types:
• Gas Mileage: Many credit cards provide cash back rewards for gas. Some cards are geared towards a specific gas company, while others treat all gas companies and stores the same way. The rewards from these types of credit cards can really add up for people who use a lot of gas and consistently travel by car.
• Travel Benefits and Rewards: Many credit cards offer tons of travel rewards when flights, stays, and other travel expenses are booked through them. For frequent travelers, at least one travel-geared credit card should be an essential part of their wallet.
• Cash Back / Reward System: Some credit cards offer a percentage of cash back whenever they are used, while others give out points that can be redeemed for purchases or even cash. When done right, this can be a great way to earn money on everyday purchases.

The Best Ways to Use a Credit Card

If you do have a few credit cards you are using, knowing the best ways to use them can be extremely helpful; here are some tips:

• Be mindful of your credit card limits.
• Pay off your credit cards as soon as possible after using them.
• Maximize the benefits of your credit card rewards by adopting a strategic approach when using them.
• Take advantage of low or zero-interest introductory offers, which many credit card companies offer.
• Use balance transfer cards to refinance high-interest or unmanageable credit card debt.
• Keeping a savings buffer is essential to prevent relying on credit cards for unexpected expenses.
• Avoid excessive and unnecessary credit card usage.

Credit cards, just like any other loan, have their pros and cons. Managing your credit card debt becomes simpler when you are aware of the various solutions and strategies available, like paying off your balance in full each month or using a LoanMart loan to consolidate them.

Once you find the right combination of techniques that works for you, you can effectively use your credit cards without them wreaking havoc on your finances. By learning more about actions to avoid and best uses, you can optimize your borrowing and make the most out of your credit cards.