Monday, June 13, 2011

Pros and cons of credit cards


Points and rewards – you get all kinds of goodies for spending what you were going to spend anyway. More than that, you can choose a card that rewards you in the form you value most, whether it’s cash back or flight miles.

Security – if you lose a credit card, you can report it and have it cancelled. You can even get the money back. If you lose cash, it’s gone forever.

Management – you can see each individual charge that you made. If you spend $3 on a coffee every day, you could feasibly see that that’s where almost $1,000 of your money goes each year.

Build your credit score – lenders like to know that you’re good for the money they let you borrow. The mortgage rate you are awarded on your first home, and the subsequent monthly payments, could be drastically different depending on the score you’ve built up.

Flexibility - You can pay now or pay later. While this understanding gets most of us into trouble, it also saves us the embarrassment of making the phone call that starts like this: "Hey, Mom. Dad. Um, it totally wasn’t my fault, but I kinda totaled my car..."


Points and rewards – let’s think critically here: chances are credit card companies wouldn’t offer these if they weren’t making money off of them. Not only are you likely paying for them in another way, but they also probably entice you to spend more than you otherwise would. Incidentally, have you taken a look at how slowly those points build up and how inflated the “rewards” are? 10,000 points for a $50 gift card? Gee, I must be a "valued" customer.

Interest – remember that $60 shirt you bought three months ago? If you pay only the minimum amount each month, it could easily become the miraculous $180 shirt.

Encourages debt – Why would a 21 year old girl ever need a $5,000 credit limit? If she spends the entire $5,000, how is she supposed to pay that off, given her current occupation as “student?” To the credit card companies, the answer to this question is largely irrelevant.

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