There is no escaping the topic of credit cards when we talk about finances.
Unlike paper money where we can see and feel our hard-earned cash being spent, this little piece of plastic makes use of ‘imaginary currency’ to be traded and bought at a moment’s whim.
The concept of credit is as old as time, paying for something at a later date in the form of debt.
While our ancestors relied on good old trust in the hopes that customers eventually paid their dues, modern credit systems are a lot less lenient. Enter the credit card, with its purported benefits and equally unforgiving penance system.
For the responsible user, credit cards can indeed be useful. But for those who bit off more than they could chew (or rather, spend more than they could pay) their stories are a cautionary tale.
That said, it’s time to shed some light on both the good and bad of using credit cards. Hopefully parents will know exactly what they sign up for when they start swiping.
The Good of Credit Cards
Convenience
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The most obvious benefit is of course, credit cards are convenient.
They eliminate the use of cash and coin, but that’s just the tip of the iceberg. Credit cards are not only useful for in-store purchases but also for online or virtual payments.
They offer a secure payment method accepted by merchants worldwide, unlike certain debit cards.
Moreover, credit cards protect your finances in a way, especially from theft. Instead of carrying wads and wads of paper money that can easily be pickpocketed, credit cards can easily be cancelled with a phone call if stolen.
Credit History
Most people don’t use credit cards out of convenience but necessity. Most people looking to buy a house or car (through bank loans) benefit the most from collecting points through credit cards. This is how you build your ‘credit history’.
Your credit history is basically how well you are able to pay off your debts.. Assuming you use it wisely and pay off your payments on time.
A clean credit history will reflect positively on you as a debtor. Which leads to better interest rates on loans in the future.
Rewards and Perks
Credit cards offer various rewards programs, such as cashback, airline miles, and loyalty points.
Just by using your credit card for everyday expenses, you can earn rewards that can be redeemed later for travel, merchandise, or statement credits.
Consumer Protection
There is a considerable degree of financial security that comes with owning a credit card.
They can provide additional protection compared to other payment methods, protecting you from theft or losses. If you somehow end up becoming the victim of fraud, you can dispute purchases made through your card.
If your card to stolen you can cancel it quickly before the thief can use up your credit limit.
Moreover some coverages also allow you to request a reimbursement if a purchase made with your credit card is damaged, stolen or a scam.
Emergency Funds
Credit cards are good for those rainy days when you need to pay for an expensive purchase, or a costly hospital bill, or even get your car fixed.
Credit cards can serve as a financial safety net during unexpected emergencies or when facing temporary cash flow issues.
They can cover immediate expenses until you can find some other way to pay.
The Bad of Credit Cards
High-Interest Rates
Credit cards often come with high-interest rates, especially for users with lower credit scores.
If you carry a balance from month to month, the interest charges can quickly accumulate and lead to significant debt.
Debt Accumulation
Most people ruin their entire future just because of unpaid credit card debts. And in truth this is where a majority of the scary stories come from.
One of the major downsides of credit cards is the ease with which debt can accumulate.
Impulsive spending or exceeding your credit limit can lead to unmanageable debt that takes years to repay.
If you don’t pay up within the allotted time you will be blacklisted and may even have to file for bankruptcy.
Fees and Penalties
First time users will always neglect to read the terms and conditions of their credit cards. Owning one may come with various hidden fees attached.
These can be annual fees, late payment fees, or balance transfer fees. If you fail to understand, remember and manage these fees can actually hurt your finances in the long run and cost you even more money instead of saving it.
Temptation to Overspend
A credit card does not give you free money. That’s the most important thing to understand about them. It works just like a debit card except a debit card doesn’t give you those delicious credit scores.
Remember, you have to pay for whatever your pay for. If you don’t keep track of your expenses, you can easily go over your credit limit.
The convenience of credit cards can tempt individuals to spend beyond their means which is a slippery slope to bankrupt land.
Credit Score Impact
Just like how you get perks and rewards for being a good credit card user, the opposite is true if you’re an irresponsible one.
Mishandling credit cards, such as missing payments or maxing out your credit limit, can negatively impact your credit score.
A low credit score can limit your ability to secure loans, obtain favourable interest rates, or even affect job prospects.
Swipe Responsibly
Credit cards can be amazing if you’re planning on owning property, starting a business or make regular overseas payments and purchases.
That said, only resort to them if you’re well-off financially with a high-paying job. Otherwise just use a debit card if your only reason is convenience.
Don’t waste the potential of credit cards just because you don’t like carrying extra cash. A debit card works just as fine if convenience is your main concern.
To make the most of credit cards, it is essential to understand the terms and conditions of your contract.
Create a budget, make timely payments, and avoid overspending and accumulating unnecessary debt.
By using credit cards wisely, parents can plan for a brighter financial future not only for themselves but for their entire family.
Just remember to swipe responsibly and you’ll be fine.
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