Credit cards can make your life less stressful and even earn you hundreds of dollars in rewards, but they also can cause irreparable damage to your financial health.
If you manage your credit cards responsibly and don’t depend on them to supplement your income, they should improve your life. If you use credit cards to live beyond your means, they usually have a negative impact on your life.
Carrying a credit card is a convenient alternative to carrying cash or a checkbook, especially when you purchase a big-ticket item such as a television. Credit is also safer than most other payment methods. For instance, you are never responsible for fraudulent charges on a credit card. Also, most credit cards offer a reward for using the account; you can sometimes earn money off of your everyday purchases if you pay the balance before the grace period ends. Credit card companies usually give customers a few weeks to pay a bill interest-free.
The biggest downfall of credit cards is they tempt you to making purchases you would normally forgo and choose a standard of living beyond what your income level can sustain. Also, credit cards tend to have high interest rates — more than 15 percent if you have a poor credit rating. It can become impossible to tackle the balance on an account when you have interest accruing every day. If someone steals your card, it can cause months of problems as you try to prove which charges are fraudulent.
You can have a good credit rating without a credit card, but it is much easier to reach the top tier of most scoring models if you have a revolving credit account. A credit card can be a good or bad item in your credit history. If you keep a low balance and never miss a payment, the credit card can turn you into an excellent credit risk. Missing payments and maxing out your credit cards damages your credit rating and can make you a risk to lenders, employers and landlords.
Consumers with credit cards usually carry thousands of dollars in balances, so avoid using a credit card to make everyday purchases, such as lunch and concert tickets. If you make a purchase, pay the balance within the grace period. Keep the credit card for emergencies and make a small purchase every few months to keep the line active. People sometimes use introductory rates on a credit card to invest in something with a higher guaranteed return, such as a savings account, and pay off the balance before the teaser rate ends.