Do you ever have the thought, “Should I get a credit card?” Despite a wealth of information about the advantages and disadvantages of credit cards, there is not a simple answer. The best decision will be different for each person. Credit cards are not inherently good or bad, but the way that you use them can have negative or positive impacts on your credit and financial outlook. Here are the most important factors to consider when making your decision:
How Credit Cards Work
Credit cards are essentially short-term loans you need to pay toward on a monthly basis. Banks or credit institutions will offer you a maximum line of credit with an interest rate that accompanies your loan. Introductory interest rates may be lower than your typical rate or even at 0 percent APR. But look at the interest rate after the introductory period expires --- that’s the one that counts! You typically need to submit a minimum payment by the date listed on your bill. If you do not pay the minimum, you will be charged a late fee and incur interest rate on your owed money.
When to Use Credit Cards
Even if you do pay the minimum balance, your interest will accrue rapidly, forcing you to pay more money in the long term. Experts suggest using credit cards if you can pay the bill in full every month, meaning that you do not accrue any negative interest. If used moderately and consistently paid, a credit card can offer you solid benefits such as rewards and a solid credit score. Do you feel comfortable regulating your spending habits? Credit cards should be used to build credit and buy necessities but not on splurges.
If you feel incentivized to get a credit card to spend money you don’t have, stay away. With credit cards, it’s easier, both psychologically and logistically, to detach your purchases from reality. A healthy relationship with finances is always grounded in awareness. Just as paying credit card bills can contribute to good credit, not paying credit card bills can lead you down a road to very bad credit.
Let’s ask the question again: “Should I get a credit card?” When deciding whether to invest in a credit card, think about your original intention and financial history. Are you confident that you could spend reasonably and pay down a credit card bill every month? If not, that’s okay --- just don’t get a credit card for the time being. Instead, focus on developing financial awareness and budgeting skills as a powerful foundation for your choices.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY