Are Credit Cards Good Or Bad? There is no better way to start this post than with the big debate – whether credit cards are good or bad. We have all heard of people who never have a card’, and others who have done wonders with them. Here we will cover its various aspects.
In any case, having a credit card is always recommended, as long as you know how to use them. In short, if you are irresponsible with them and only use them to get into debt, they will obviously affect you. But if you know how to use them, you’ll get a lot of benefits.
How Do Credit Cards Work?
Credit cards can open many doors for you…literally and figuratively. These are financial products that allow us to get money from the card issuing bank to make purchases, pay bills, etc. The process is something like this:
- The user uses his card to make a purchase. The bank guarantees that it lends you that money and pays the store or shop.
- After the cut-off date, the bank makes the sum spent on the card and asks the user for payment.
- If the user pays everything on time, it doesn’t cost them an extra penny. But if he is late in paying, interest is charged. Meaning that if you don’t repay the bank on time, you will pay them more than you spent. And this is the main reason credit card business is profitable for banks.
Why Use Them? 5 Reasons To Use Credit Cards
If you’re irresponsible about using the card, it can get very bad, financially. But if you do it right, you can have many benefits.
Here are some reasons to use it in a right way:
- You learn to control yourself and manage your money professionally:
As strange as it may sound, a card can help you become more managed because you have a clearer record of your spending, and you can set a cap and keep a track of payment dates. That is, you force yourself to keep your money in mind.
- Build credit history:
Using a card correctly can improve your credit history a lot. And having a good score helps in getting you bigger credit (like buying a car or buying a home) giving you a better life.
- Months without Interest Promotions:
We’ve already talked a little bit about the benefits and the risks. But if you use it correctly, it can help you to buy big things without spending money from your pocket initially.
- Security, no carrying cash:
You may think that having a card is dangerous because it can be cloned and although it is still true, it is becoming less and less common. In fact, it is safer for us to walk around with plastic (which can be cancelled with a phone call) than to carry cash and lose it.
- Points and Rewards:
One of the benefits is that almost all cards have loyalty programs that give you rewards on items, electronic gadgets, travel or fuel. So if you use it well, you’ll get rewards.
Tips on Using Credit Cards
If you’ve already decided to use them regularly, here’s how to do it properly.
- Don’t use it to buy things that “you can’t afford right now”. They are not an extension of your paycheck.
- Don’t delay monthly repayments. Because if you only pay the minimum balance, you can go into debt to the maximum. So always pay your bill in full and on time.
- Use it to pay for things you already have saved. This way your card serves only as a payment method and a tool to improve your finances.
- Use up to 60% – 70% of your credit line, no more. This will look better to the credit institutions. We remind you that this is one of the recommendations to improve your credit history.
- Try to keep your debt below 30% of your salary. This is a traditional advice derived from the rule of 28/36 which states that a household should spend maximum 28% of its gross monthly income on total housing expenses and no more than 36% on debts such as loans or credit card payments.
- If you want to use the cards as a financial ninja, we remind you that the perfect formula is to have two credit cards.
Now you know the advantages of using credit cards, just make sure that if you are going to use it, do it well with all the above mentioned tips. And if at first you struggle to control your spending impulses, you can always freeze it.