Credit cards can be your best friend if you use them wisely but your worst enemy if you use them irresponsibly.
If you’re disciplined, you can actually make money from credit cards – provided you get a card with no monthly or annual fees, pay off you balance each month and don’t buy anything you wouldn’t otherwise get if you had to pay cash.
But if you struggle with self-control, credit cards can turn you into a reckless spender and leave you mired in debt.
Credit cards, then, are neither inherently good nor bad. So depending on each individual’s behaviour, the five credit card characteristics listed below could be either pros or cons.
Credit cards are an easy way to borrow money
Pro: Assuming you pay off your balance each month, credit cards can make you money. Let’s say you use your card to make a $100 purchase at the start of the month and then repay the loan at the end of the month. That means you’ve taken out a 0 per cent loan, which has allowed you to leave that $100 in your bank account to accrue interest over the month.
Con: If you don’t pay off your balance each month, you’ll be charged interest, which will probably be higher than 10 per cent and might even be as high as 25 per cent. And if you don’t pay off that interest promptly, you’ll be charged interest on your interest. The result could be a debt trap that you struggle to escape.
Credit cards give you rewards points
Pro: Assuming your credit card doesn’t charge monthly or annual fees, rewards points are free money.
Con: Rewards points could actually drain your wallet if your credit card company charges you a fee for the privilege or if the lure of rewards compels you to buy things you wouldn’t ordinarily buy.
- 0 per cent loans
- Free rewards
- Less risk of losing cash
- Overseas cash
- Helps your credit score
- High-interest loans
- Costly rewards
- More risk of spending
- Overseas fees
- Harms your credit score
Credit cards save you from having to carry cash
Pro: Thanks to credit cards, we no longer have to carry wallet-loads of money that could be lost or stolen.
Con: Credit cards can promote reckless spending, because they remove the restraining impulse that comes from giving someone your money and seeing it disappear from your control.
Credit cards make it easy to spend money overseas
Pro: Credit cards can give you immediate access to foreign currencies when travelling.
Con: Using credit cards overseas can be very expensive, thanks to international transaction fees and currency conversion fees. If you were to travel for one month and use your card regularly, you could conceivably rack up several hundred dollars’ worth of fees.
Credit card activity counts towards your credit history
Pro: Your credit score will benefit if you establish a record of consistently repaying your balance in full each month.
Con: Your credit score will suffer if struggle to pay your credit card bills or you make failed applications for credit cards.