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Pros And Cons Of Credit Card Use

Pros And Cons Of Credit Card Use

When used wisely credit cards can offer many significant benefits by both allowing the purchase of goods or services even if the funds may not be currently available as well as building a credit history to obtain better loan interest rates in the future. The problems most consumers encounter though when using credit cards is not having a thorough understanding of the terms as well as managing their funds properly to keep credit card debt low. There are many pros and cons of credit card use and understanding the benefits and detriments will go a long way towards ensuring a stable financial future.

A credit card can be a wonderful tool which allows consumers to obtain a short-term personal loan at a specific interest rate to pay for goods or services without having the cash on hand at the time of purchase. This allows many consumers to take advantage of sales or other special deals even though they may not have funds for a few weeks. In this way, a credit card provides additional flexibility when making financial decisions. The use of a revolving line of credit, also known as a credit card, also builds a credit history which shows that a consumer makes timely payments as well as staying below their available credit line. Over a number of years this establishes a pattern of responsible financial behavior which can lead to better interest rates on bigger loans such as a home mortgage or automobile purchase. These significant pros unfortunately can be undone very rapidly if a credit card is used incorrectly and not managed appropriately.

Due to the delayed effect and instant gratification when using a credit card many consumers often find themselves in over their heads sooner rather than later with significant credit card debt. It is an all too common occurrence, especially among young credit card holders, to purchase today and think about paying off tomorrow. This kind of live for today attitude can have significant financial repercussions in as little as 3 to 6 months which can then take years to fix. The downward financial spiral often begins with purchasing thousands of dollars of goods within a month or so and then being unable to make even the minimum monthly payment. Once a few payments have been missed it not only reflects negatively on the individuals credit report as black marks but will often result in an increased interest rate as well as additional penalties for over-the-limit balances and late payments. These additional fees are added to the principal balance at which point interest is calculated and added to the balance making the situation worse. It is possible in as little as six months to have a credit card balance being in extended default headed towards a third party collection agency or even legal action.

Using a credit card is the financial equivalent of gun ownership in that if it used correctly with maturity it can be a valuable resource that provides security and stability but if used incorrectly will wind up shooting you in the foot. There are many pros and cons to credit card use and the pros far outweigh the cons which can be easily avoided if used in smart ways. A credit card and other forms of revolving credit are great ways to establish a credit history which will have benefits when starting a family and buying a home. Use your credit card to lay the foundation for a stable financial future and establish an air of responsibility. Don't be fast and loose with a credit card as the cons from mismanagement could negatively affect your financial future for years to come.

Image by: Chris Dlugosz