Credit cards have evolved into an instrument that is indispensable in modern life. You can use them to make purchases even when you don't have the cash on hand for them, or you can use them to buy something from an online vendor without having to wait for a physical check to be delivered to your door. Think about the benefits and drawbacks of having credit cards, and ask yourself if you really have any use for them at all before making a decision about whether or not to get them.
The Real Story Behind Credit Card Statistics and Averages
A large amount of debt that people in the United States carry on average is partially attributable to the misuse of credit cards, which is a significant contributor to the problem. According to one of the three major credit bureaus, Experian, the average credit card balance at the beginning of the year 2021 was $5,525, which represents a slight decrease in the average credit card debt when compared to the previous year. During the same time period, the average American household had three credit cards. The majority of purchases that Americans make are funded by the use of credit card debt. In spite of the fact that it presents both positive and negative aspects, navigating this terrain can be extremely hazardous. Being aware of the benefits and drawbacks of credit cards can help you decide how you want to use them in your life and can also assist you in managing the risks involved.The Value of Credit Cards in Today's World
They can be put to use with a minimum of fuss. Because the vast majority of establishments accept credit cards, you won't need to withdraw cash from an ATM before heading out because you can pay with a card instead. It is important to keep in mind that some establishments might not let you tip with a credit card. You have more purchasing options depending on whether you make your purchase in person, over the phone, or online. If you only have cash, your purchasing options are restricted to those that take place in person, unless you buy money orders. Because you have a choice in the matter, you won't have any trouble making a speedy payment with your credit card and getting on your way.Make Payments Over Time
You have the option to make payments toward the balance of your account over a set amount of time. It is recommended that you pay the full balance on your credit card at the end of each billing cycle in order to avoid incurring any fees or interest charges. The one exception to this rule is charge cards; in order to keep your account in good standing, you must always pay your balance in full. When you have an immediate need for a product or service but do not have the money to pay for it right away, it can be helpful to be able to make payments over time instead.Incentives to Make Use Of
You may be able to earn rewards that can be redeemed for things like cash, gift cards, airline miles, or even other types of merchandise with certain credit cards. If you use your credit card frequently, you will accrue a greater number of reward points. You have the option of saving up your rewards or redeeming them as you go.Low Initial Participation Rates
A large number of credit cards offer an introductory period of at least six months during which there is no interest charged on balance transfers or purchases made with the card. This allows you to make initial purchases with your credit card without having to worry about accruing interest charges because you can pay off the balance in instalments over time.Added Layers of Protection
Credit cards offer a higher level of protection than the more conventional checking methods. If another person were to gain access to your checking account, they would be able to use it to make money out of it. After that, you would be required to wait for the bank to investigate your report of fraud and then replace the funds. If someone steals your credit card, you'll have to wait for the card issuer to clear up the fraudulent charges before you can use it again, but you won't lose any money in the process.Errors in Billing That Can Be Contestable
If there was an error on your bill, you have the right to withhold payment (as long as you dispute the charges in writing). You have the ability to file a dispute with the credit card issuer in the event that there is an error on your monthly statement. In the meantime, you are not required to pay for that purchase so long as the investigation being conducted by the credit card issuer does not turn up evidence against you.The Drawbacks of Utilizing Credit Cards
Even with all of the benefits that come along with using them, there are some drawbacks to using credit cards that may discourage you from using them. These drawbacks include things like higher interest rates and longer waiting periods. Your purchasing power will increase thanks to credit cards because they come with a credit limit. Because of this limit, you can spend money that you do not yet have and money that you may not get in the future, which gives you the illusion that you have more money than you actually do. This misconception is what leads many people into credit card debt that is beyond their control. If your monthly expenses are $3,000 and your income is $4,000, you will have $1,000 of discretionary income available each month to put toward savings. You have the ability to use $6,000 that you would not have been able to save up for at least six months if you did not have a card limit of $6,000. The interest and the inability to make payments that will bring the balance down are the risks associated with this situation.Your Expected Income in the Future Will Be Lower
When you use a credit card or any other form of debt, you are effectively borrowing money that you do not currently possess, which means that the amount of money that you will have available to spend in the future will be lower. If you want to keep your credit score where it is, you will need to allocate some of your future income toward paying off the balance on your credit card. When you have a lot of debt, paying it off or even just getting it under control can be extremely challenging. Using your credit card on a consistent basis while also making the minimum payment can lead to an increase in debt as well as a reduction in potential income.Interest, fees, and identity theft associated with credit cards
Credit cards can end up costing you hundreds of dollars over the course of a year, depending on the interest rate you pay on the card as well as how you use it. If you know how interest is calculated and how often you are billed, you will be better able to coordinate your payments, which will help you avoid incurring additional fees or having your balance grow. If you make a payment that is late, you will be subject to fees. The fees quickly add up, and they are included in your overall balance. This results in the addition of interest to your already-existing fees. If you have a credit card, you expose yourself to the possibility of being a victim of credit card fraud. It is not necessary for thieves to take your card in order to access your information. They can commit fraud by making purchases using the stolen information after hacking into the information network of a company and stealing the personal information of thousands of customers. (In most cases, you won't be responsible for the charges so long as you immediately report them.) But even if you don't have a credit card, you still run the risk of having your identity stolen and having criminals open a credit card in your name and charge purchases to it. This can happen even if you don't have a credit card.Effects of Debt on Everyday Life
When you use your credit card, you run the risk of accruing additional debt. If you pay off the balance of your credit card each month, you can prevent the debt from increasing; however, if you only make the minimum payments and continue to make purchases, your debt will quickly increase. The manner in which you use your credit card can have an effect on your credit score. Your credit score will start to suffer if you run up large card balances and pay your credit card bill late on a consistent basis. Your ability to purchase goods and services isn't the only aspect of your life that can be impacted by your credit score; your professional life can also be impacted by a low score. Your ability to obtain additional credit is hindered, and you may give the impression to potential employers and companies that you are not responsible with your finances if your credit score is low.In Case of Emergencies, as well as Responsible Use
The vicious cycle of credit card debt is easy to enter but difficult to escape once it has taken hold. It is possible to avoid all of this by keeping your balances low, making payments on time, and not charging more than you are able to pay off. Credit cards, if used properly (making payments on time and keeping your balance low), help you build a good credit score, which you can use to qualify for loans that you might need in the future. If you keep your balance low and make your payments on time. Credit cards can be extremely useful in times of crisis. In the event that you do not have sufficient funds in savings to cover an unexpected expense, you may want to consider using a credit card as an alternative. Major home and vehicle repairs, as well as the cost of replacing broken appliances, are examples of expenses that are typically unavoidable; however, credit cards can be helpful if chosen carefully and used in the appropriate manner.Questions That Are Typically Asked (FAQs)
When was the first time that credit cards were used?
Since the beginning of recorded history, people have had access to credit in one form or another. However, credit cards as we know them today didn't come into existence until 1950, when Diners Club released the world's first charge card. 3What is the optimal number of credit cards for me to have?
Your ability to make payments on time and your spending patterns will determine the number of credit cards that are best for you to have. If you've never had a credit card before, it's in your best interest to start with just one and demonstrate that you can successfully manage the associated responsibilities each month. If you apply for credit less frequently but for longer periods of time, your credit score will have more time to improve. Once you've demonstrated that you're able to responsibly manage multiple credit cards, it's a good idea to have a selection of cards that can be used for a variety of purposes, such as cashback, travel rewards, and business use.What will happen if I decide to stop paying the bills for my credit card?
If you fail to pay the bills associated with your credit card, the company that issued the card will assess a late payment fee in addition to interest charges. After you have been delinquent on your payments for more than 30 days, the credit card company may report you to the credit bureaus; as a result, your score will go down, and you will continue to be charged interest on your balance. Your account will be sent to collections if you continue to ignore the multiple requests from your card issuer to get in touch with you regarding your overdue payments.