The Truth About Credit Cards: Pros and Cons

There are many reasons why credit cards have become an essential to functioning in today’s society. Be it for purchasing items online, paying for things you don’t currently have the cash for, or even getting a loan for a vehicle or car.

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If you’re in the process of deciding whether or not you want to apply for a credit card or bar them from your life forever, you can take a look at the following pros and cons to help you figure out if you need one or not.

What You Need to Know about Credit Card Averages

It’s no surprise, the misuse of credit cards is one of the main reasons individuals carry debt in Canada. In the first quarter of 2021, the average Canadian credit card debt was already standing at $3 330.00. Furthermore, the total non-mortgage loans reached $789.5 billion by the end of 2020, states Statistics Canada. Most credit-using Canadians equally have at least two credit cards.

In other words, if, on average, a Canadian has at least 2 credit cards with at least $6000.00 total debt by the end of second quarter, then it’s safe to say that an average person living in Canada has at least $12 000 in credit card debt hanging over their head. These numbers equally indicate that Canadians use their credit cards to finance many items they cannot necessarily afford right away.

Of course, there are both advantages and disadvantages to having a certain amount of credit card debt, usage and history. That being said, misusing credit cards can also become a challenging lifestyle. 

Credit Card Pros

When it comes to credit cards, there’s no doubt about it – they’re highly convenient. From paying for your purchases in store, online or over the phone to saving time at the ATM and decreasing person-to-person exposure rates, the advantages can seem endless. Here are a few of the pros of owning and using a credit card: 

Pay Your Purchase Over Time.
Your credit card balance can be paid over a certain time, usually anywhere from several months to several years. This is often a go-to solution when an individual doesn’t have the cash upfront to make their purchase. Generally speaking, it is good to practise paying at least the minimum required amount on your bill; however, the best option is to actually pay your entire credit card sum at the end of each billing period.

Reward Points.
Many different credit card companies add extra advantages for adhering to them, such as reward points. These points can be used for a multitude of things such as cash, Airmiles, merchandise and even gift cards. Rewards can be saved up over time in order to redeem larger prizes or travel to a further destination.

Low Sign-Up Rates.
For a 6-month introductory period, many credit card companies offer special deals such as 0% interest on purchases and balance transfers, for example. You can use your card and pay it off over time without incurring interest fees during this period.

Although it may sound a little surprising, credit cards are actually pretty safe, notably when compared to a traditional checking account. If your checking account at the bank were to be frauded, the individual could empty it out down to the very last penny. You’d have to declare the fraudulent activity and wait for your bank to process the event before replacing the stolen funds. On the other hand, if you were a victim of fraud on a credit card, you’d still have to wait for the scam to be cleared by your card issuer, but your account wouldn’t be emptied out.

Withholding Payment due to Billing Errors.
When it comes to disputing a billing error on your credit, as long as you do so in writing, you have the right to withhold payment or not pay for the purchase until your credit card issuer fulfills a full investigation.

Credit Card Cons

Despite their many advantages, credit cards hold their fair share of cons as well, and they make you reconsider applying for a credit card as a whole. First and foremost, a credit card is very much like illusional money. Many individuals use credit when they simply don’t have the cash, and in many cases, they may not ever truly have it. Credit card owners tend to feel as though they have more money than they actually do, because they can spend money that isn’t technically theirs.

Furthermore, credit card debt doesn’t only include the strict purchase amount you spent on a particular item. It also includes a monthly interest rate on the debt as well as any fees you may be paying. The big issue here is not being capable of making large enough payments to actually decrease the owed amount on the card regularly.

Although you can do all your purchasing in most stores with your card, many credit users tend to forget that they often cannot tip using Visa or Mastercard, for example, so it might be an idea to carry a few bucks in your wallet too. 

How to Decrease Debt

Decreased Future Income.
The continuous use of credit without the capacity to pay more than the minimum required amount will increase your debt, all while decreasing your future income. The debt you incur on your credit card will eventually have to be paid, whether you like it or not. Therefore, a part of your future income will continuously go to your credit card debt until you succeed in paying it completely off. The higher your debt, the harder it becomes to pay it off. Ultimately, the same goes for any type of debt or loan that will eventually have to be paid.

Interest Rates, Card Fees & Identity Theft.
When it comes to interest rates and credit card fees, you can easily be paying hundreds of extra dollars out of pocket in the span of a year. Fees, such as for late payment up very quickly, on which you are equally charged interest. You should always stay on top of your billing schedule, coordinate payments with paydays and avoid increasing your balance uselessly.

Identity theft is another rather common issue with credit cards, and most of the time, the thief doesn’t need to get a hold of your card directly. In fact, they can log into a credit card company’s data network and steal personal information from millions of people at once.

Poor Credit Score.
If you’re misusing your credit card or racking up high credit charges while only paying back the minimum required amount, your credit score will quickly start to decrease. A bad credit score is very impeding in life, obviously preventing you from certain purchases, but it can also affect your professional life. Different businesses and employers may take a look at your credit score and realize that you aren’t financially responsible. 

Bottom Line: Responsible Use

When used correctly and responsibly, credit cards can be an advantage to someone’s financial life, allowing them to obtain lines of credit, mortgage loans and to reap certain point rewards. Credit is also great for emergency use, getting you out of a difficult financial position in your time of need. If you’re going to use a credit card, make sure you’ve done your research, you’ve learned the ins and outs, and you’re ready to be responsible with money that isn’t yours!