Credit cards have become a big part of our lives. Many of us use our credit cards several times a week to pay for food, clothes, gas and much more. Getting your first credit card has become a rite of passage, a declaration of financial maturity. But be careful – without a healthy dose of self-control, credit cards, and the interest that comes with them, can quickly become a nightmare.
At this time of the year, credit card companies are offering a lot of deals and bonuses, particularly to young people who have not had a credit card before. Spring break promotions are common, since many young people are starting to look out from the shadow of winter and make plans for the warmer weather.
If you’re thinking about getting your first credit card, now might be the time to do it. So, to help you make your decision, here is Payza’s honest look at both the benefits and drawbacks of having a credit card:
- Money available in case of emergency: This is the most obvious and immediate benefit of a credit card. When you’re in a bind and need cash to get out of it, that’s what a credit card is there for.
- Rewards points, cash back or travel miles: Depending on which card you decide to go with, when you purchase with your card you can rack up reward points or travel miles. This means that every time you use your card you’re also saving up towards some cool stuff like a free or discounted vacation.
- Build good credit: Good credit can save you a lot of money in the long run. If you pay your credit card bills on time and avoid maxing them out you’ll be well on your way to a good credit rating. This will also help you get a mortgage at a low interest rate later on.
- Consumer Protection: Most credit cards have built in features to ensure you’re protected in case of fraud, or if you receive faulty merchandise from a seller that refuses to reimburse you. On top of that, some credit cards will even automatically extend a manufacturer’s warranty, giving you up to an extra year of protection in case your big-ticket item breaks after the original warranty expires.
- Load your Payza account: Don’t forget that you can use your credit card to add funds to your Payza account, so if you’re planning to shop online then there’s no need to worry about revealing your card information.
While these benefits may make it sound like getting a credit card is a no-brainer, there’s some major pitfalls that many people have come to know all too well.
- High interest rates: If you don’t get into the habit of paying off your balance, you may be stuck with paying for more than you bargained for, courtesy of high interest rates. The average US credit card rate is 14.95% – that means for $1000 dollars of credit card debt, you’ll pay nearly $150 a year in interest, plus you’ll have to pay interest on top of any interest you owe.
- Hidden Fees: When selecting a credit card, make sure you’re informed about all the fees associated with it. Credit card companies make tons of money on things like late payment fees, cash advance fees, over-the-limit fees, currency exchange fees…the list goes on. Before you choose a card, always read the fine print so you’re not caught by surprise.
- Frivolous spending: Because of their convenience, credit cards make it a lot easier for you to go over budget and buy items you normally wouldn’t buy with your paycheck. While it feels great to fill your home with a bunch of fancy new gadgets, before you buy you should ask yourself if you would really buy this with your hard-earned cash. If the answer is no, you probably shouldn’t buy it with credit either.
- Debt: This is easily the biggest drawback since you can accumulate a lot of debt in very little time with credit cards if you’re not careful. With interest adding up month after month, your credit card debt can soon become overwhelming.
If these downsides sound like too much for you to handle, a good alternative to a credit card is the Payza prepaid card. With a prepaid card, you load your money before you ever spend it, so you don’t have the risk of overspending and ending up in debt. For more information, see:
Now that you know of the basics of having a credit card, it’s up to you to choose the right card and use it responsibly. If you have any tips of your own about being a responsible credit card user, share it with the Payza community by leaving a comment below.