Are Credit Cards Bad? What We Need to Know About Them

Credit cards are commonly used in the US, yet still, most consider them evil and a pitfall for debt. Are credit cards really that bad? We brought in the experts to explain all you need to know about credit cards.

Jeanne Kelly is the Founder of The Kelly Group Coaching, Inc. According to Jeanne…

I like to talk about credit cards being the tools to build your credit report history and score. You have to start with accounts on your report to get going with using credit. If you know that the reason you are getting a credit card is to start building a credit history, and it is for investing into your future credit score, it can be very helpful. 

When it comes time for a major purchase, such as a car loan or home loan, you want to have a good history on your credit report to get the best score you can for yourself. I call this healthy credit. Use credit cards that you normally would pay a bill anyway. Meaning, if you have a cell invoice, pay it with your credit card. 

You need to pay that account anyway, so why not put it on your card to show activity and then pay the credit card. So you are not getting into debt with the credit cards; you are just using them to pay accounts you normally would be paying anyway.

Scott Hasting is the Co-Founder of BetWorthy LLC. Scott is an experienced Financial Analyst, and according to him…

Credit cards are not necessarily bad, but they have the potential to be one. There is a reason why the older generations are not such fans of using a credit card, mainly because they don’t want to be in debt. 

When people are given the capability to buy things without having the physical money on hand, that feeling can be addictive. If your emotional control is not good enough, you might end up purchasing things on credit, way beyond your capabilities to pay. This is when credit cards become a bad thing. However, if you are able to take responsibility for your finances and still be able to pay your dues on time, then credit cards can be good. 

Credit cards will allow you to purchase expensive things and just divide the payments into monthly amortizations. This then builds your credit score, and in the future, it may make the approval of your loans faster, and loan amounts bigger. These things make the use of credit cards good.

Scott Nelson is the CEO of MoneyNerd Ltd. According to Scott…

Despite common opinion, credit cards are great financial products if used correctly. They are fantastic for building credit, which is vital when applying for a mortgage; they allow you to spread out your costs and pay for things before payday comes around, they protect against fraud with certain coverages, and often they have plentiful rewards and cashback opportunities.

However, the cons of a credit card come from the user or more the lack of understanding by the user, which is often manipulated by providers. Credit cards, if not used correctly, can give you a false sense of financial security which can land you in debt and apply pressure with fees and interest. 

Finally, although they can be vital for improving credit scores, if they are misused, they can completely destroy your credit and can even land you in court for a CCJ. 

Alan Harder is the Mortgage Broker of AlanHarder.ca. According to Alan…

Cash advances are a benefit of credit cards. You can obtain funds whenever you require them. Bear in mind that cash advances frequently have a higher interest rate, so you must have a realistic repayment plan in place for those advances. However, the drawback is the possibility of succumbing to temptation. 

Due to their ease of use, credit cards also make it easy to overspend, and you may wind up with a bill that exceeds your means. 

L.J. Jones is the Founder and Financial Planner of Developing Financial; A financial planning firm dedicated to working with associate lawyers. According to L.J. Jones…

Credit cards can be great for people if they are used responsibly. Credit cards allow you to build a credit history. A strong history of making full and on-time credit card payments can improve your credit score. A better credit score can help you secure more favorable future credit terms. Credit cards allow you to earn rewards on your spending. 

When you use a credit card on expenses you would normally pay with cash; then the rewards offset part of the cost of that expense. Credit cards give you additional short-term financial flexibility between payments. You need to make full payments each billing cycle. In between those due dates, you can spend on goods and services while also maintaining a cash position that can be used for other purposes, if necessary. 

Credit cards have additional fraud protections. If your credit card information is used illegally, credit card companies will refund you. If that money is stolen from your bank account, you may not be able to recover that money. Credit card companies can also dispute charges on your behalf.

The cons of credit cards are they have high-interest rates, which can increase your debt owed very quickly. These rates can double or triple the amount owed, leaving people in a perpetual cycle of debt. Credit cards make it harder to control spending. When we use a credit card, we don’t physically see the money being spent, like paying with cash. 

Psychologically it is easier to spend with a credit card than it is with cash. Your spending data is tracked. This allows companies to use this data for advertisements to you. For people concerned with privacy, this is a significant con.

Freddie Huynh, Credit Expert and Vice President of Data Optimization Freedom Financial Network. According to Freddie…

In general, credit cards can be very good things – for all the reasons below. They become not as good when the borrower charges more than can be paid back in full at the end of every billing period. That is the key. There’s a grace period involved in that you may have up to 30 days (the billing cycle) where no interest is charged on purchases. But then you must pay what you charged in full. Otherwise, a vicious cycle of interest, and often late fees, starts up.

• Credit cards help build a credit profile. Lenders of all types want to see that prospective borrowers can manage and repay their debt. They look at this history to determine whether to loan and what interest rate a loan will offer. Using credit cards can do that, BUT that means you must charge absolutely only what you can (and will) payback, on time, in full, every month.
• Credit cards provide protection against fraud when making online transactions. If you spot a purchase on your account you did not make, you can report it to your credit card issuer. The company will investigate the issue, and when doing so, you will not be responsible for the charge. 
• To travel. Travel-related companies (hotels, rental car companies, airlines) often prefer credit cards because it is easier to charge damages to them than to debit cards. Plus, if these businesses do accept a debit card, they may put a hold on the associated checking account. This means you can’t access that amount until the hold is released. A credit card also can be preferred when traveling internationally; many stores and other places of businesses in other countries do not accept debit cards. 
• Credit cards can help you keep track of your spending. Many issuers categorize purchases and provide summaries every year, quarter, or even month.
• Some credit cards provide rewards for purchases, such as cashback, airline miles, hotel credits, store discounts, or points to spend on catalog purchases. HOWEVER, most of these cards have high-interest rates, so they are only good when you pay off the balance in full every month. 
• Credit cards provide some consumer protections. Typical ones are rental car insurance and product warranties extending a manufacturer’s warranty. Credit cards also may offer some protection if an item you purchased is damaged, lost, or stolen; the credit card statement often can be used as proof of purchase. 

Plus, if a company from which you bought an item fails to deliver, a credit card issuer often can help, even stopping payment if necessary.