As you evaluate whether a credit card is right for you, consider both the advantages and disadvantages of credit cards.

Advantages of Using a Credit Card

Credit cards allow you to put off paying for purchases. Many people use a credit card because of the “buy now, pay later” feature. Credit cards allow you to make a purchase today and pay for it sometime in the future.

You don’t have to carry as much cash. Keeping $1,000 in cash in your wallet is dangerous. If the money is lost or stolen, it’s gone forever. Having a credit card with a $1,000 credit limit is safer. You can spend the same amount of money without the great risk of losing your money.

Credit cards offer more purchase protection. Federal laws allow you to dispute certain types of credit card charges directly with the issuer. For example, if order a product that’s damaged when you receive it, you can dispute the charge with your credit card issuer and avoid paying until the manufacturer replaces the item. If you’d paid with cash or check, you would be out of the money.

They help you build a credit history. You need a credit history if you want to buy a house or car, rent an apartment, even to get a cell phone in your name. Without a credit history, you face paying higher costs or even being denied for certain services.

With credit cards, you can make purchases over the internet. Most internet purchases require you to use a credit card. You can use a debit or check card for internet purchases, but a credit card offers more buyer protection in the case of damaged or missing merchandise and even in instances of credit card fraud.

You can use a credit card for emergencies. When an emergency comes up and you don’t have immediate access to cash, a credit card can be a lifesaver. You might need to pay for car repairs or a cover medical expense. Or, you may need a hotel stay for a couple of nights. A credit card can come in handy in unexpected financial situations.

Disadvantages of Credit Cards

Credit cards are more expensive than cash when you don’t pay your balance in full. If you don’t pay your balance off during the grace period, you’ll end up paying interest on the balance. The longer it takes you to pay off the balance, the more you pay in interest. When you use cash for purchases, you only pay for the cost of the purchase, not extra interest charges.

Credit cards encourage debt. Credit cards give you a false sense of your purchasing power. If you’re not careful, you can quickly charge up a balance that’s too high to pay. No one plans to get into credit card debt. Once you start using credit, you realize how easy it is to make purchases, and you start charging more. Keep credit card purchases to a minimum and pay off one purchase before you charge another.

Credit card issuers can change the terms (almost) at will. When you carry a credit card balance, the credit card issuer is in control. They can raise fees, increase interest rates, and close your credit card at their discretion. When card issuers change your credit card terms, you may be forced to pay off your credit card balance under the new terms. Other times, you can reject the credit card changes, but you have to give up your credit card to do it.

There’s an increased risk of credit card fraud. Thieves can steal your credit card, or even just your credit card number, and use it to rack up charges on your credit card bill. Credit card fraud can be difficult to detect, especially if you don’t monitor your billing statement. The good news it that you can avoid liability for stolen credit card charges by reporting the stolen credit card immediately. At most, you will only be liable for $50 in stolen credit card charges and that’s if you delay reporting a stolen credit card.

Make a Credit Card Work for You

Sure, credit cards have their drawbacks, but they have advantages, too. You can lessen the negative effects of using credit cards, by following a few guidelines:

• Pay your credit card balance in full every month.
• Monitor your billing statements closely and let your card issuer know about any suspicious activity.
• Keep your credit card purchases low so you can quickly and easily pay them off.
• Be careful about loaning your credit card, even to family and friends.
• Report a lost or stolen credit card immediately.

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