Some people think it is bad to have a credit card because it could lead to overspending, costly debt and credit-score damage if abused. Credit cards normally charge very high interest rates, which means spending more with a credit card than you can afford to repay can quickly get you into trouble.
There are still more reasons to use a credit card than there are not to, however. If you regularly spend within your means and pay your bills on time, a credit card’s benefits will greatly outweigh any potential negatives.
Why Some People Say It’s Bad to Have a Credit Card
Potential to overspend
Many people treat credit cards as a license to spend and will often purchase things they normally wouldn’t buy with cash. The rationale is often, “buy now, pay later,” especially when it may be a few weeks before you see a bill.
The problem is all those purchases add up by the end of the billing period, which can leave you saddled with costly debt and unsustainable monthly payments. For example, U.S. credit card users currently owe billions of dollars in credit card debt. Unaffordable credit card payments can quickly result in credit score damage, too.
High interest rates
If you don’t pay a credit card’s statement balance in full by the due date every month, interest charges are tacked onto your unpaid balance. Credit card interest rates are higher than the rates charged by most other borrowing methods, too.
Of course, you won’t have to worry about credit card interest if you don’t carry a balance from month to month.
Requirements are often unclear
Credit card issuers don’t always offer absolutes when it comes to approval requirements. Specific income requirements are hardly ever disclosed publicly, and at best you’ll have a general idea of the credit level you need for approval.
Some issuers will allow you to check for pre-approval. But even if you are pre-approved, you won’t know for certain if you’ll be approved until you apply.
Credit cards often come with an array of fees. Annual fees aren’t necessarily a bad thing, depending on your spending and payment patterns. A balance transfer fee might also be worth it if it gets you a lower interest rate to pay down debt over several months.
However, little good comes from other fees such as cash advance fees, late fees, and foreign transaction fees. These fees don’t earn you rewards, but they will accumulate interest daily if you carry a balance to the next billing period. You can sidestep such charges altogether simply by choosing the right card, paying your bill on time and avoiding the transactions that trigger these fees.
Not having to pay interest on store credit card purchases for an extended period might seem like an attractive offer, until you read the fine print. It often allows for something called deferred interest.
If you pay off the balance by the end of the introductory period, no problem. But if there’s any balance remaining once the 0% APR period ends, the card’s high regular interest rate will apply retroactively to your original purchase amount.
Just note that not all 0% APR offers are deferred interest – this is most common on store credit cards.
Why It May Be Good to Have a Credit Card
If you’re unsure of your ability to manage credit, having a credit card may seem like a bad idea. On the other hand, simply opening a credit card account – and not using it – could be worthwhile because it can help improve your credit. Just store the card in a secure place and set up the automatic payments feature to cover any applicable fees.
In addition, you can stay on top of your credit standing by signing up for a free WalletHub account. You’ll be able to get daily credit score updates along with personalized guidance to help improve your credit.
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