This was originally published on Monday, August 21, 2017, in the Pacific Daily News. Click here to subscribe to the PDN.
Almost everyone uses a credit card these days especially with the boom of online retail. You can’t rent a car or make a hotel reservation without one.
The ease of swiping your card makes it too easy to pay bills or cover you in case of an emergency. This ease of use can also land you in deep debt. Before making the decision to get a credit card, consider these pros and cons.
- Purchasing power: the power to make a purchase while traveling overseas, online, by phone and of course in the store. Many of the large credit card issuers like Visa and Master Card are accepted nearly everywhere.
- Financial backup: In case you have an unexpected event like a busted pipe in your kitchen, your credit card can be used to pay for parts and, in some cases, a plumber without going to an ATM. They can also help in case of a health care emergency or an expensive auto repair.
- Rewards: Some cards will reward you for using their credit card for every-day purchases such as gas or groceries. Others will reward you when you travel or award cash back as an incentive.
- Credit score: If you use your card wisely it will certainly help your credit history. It can also help repair your credit by showing how responsible you are by making your payments on time.
- Expense record: Especially when you are traveling, a credit card can help you keep track of your expenses
- Pay later: It has happened to the best of us, and we run short of cash and need to buy groceries or fuel. You are able to make your purchase and pay it off later.
- Protection: Credit cards allow you to dispute billing errors and some even provide insurance for expensive purchases. Most credit cards are now equipped with an EVM chip. A Europay, MasterCard and Visa chip is a global standard for credit cards to authenticate and secure transactions. The EVM chip is much harder to hack than a swipe strip. In the case of a fraudulent transaction, the card holder is usually protected.
- Interest: A high annual percentage rate can send you deep into debt if you do not make significant monthly payments or pay your balance off.
- More usage: Studies have shown that people tend to purchase more when they use a credit card. Some feel compelled to spend more than what they have.
- Late fees: If you do not make a payment you incur a late fee. Although it may be $30 to $50, it adds up quickly if you repeat this habit. Sometimes consumers will allow the balance to roll over for several months racking up interest and late fees.
- Bad credit: Studies have shown that many people fall into serious debt due to poor credit card habits. Carrying a large amount of debt and acquiring too much debt can ruin your credit score.
After weighing the pros and cons and understanding the type of credit card that is suitable for you and your lifestyle, remember to keep track of your purchases, avoid overspending and make timely payments to avoid extra fees. Use your card with reputable businesses and if your card is lost or stolen, report it to your credit card company as soon as possible.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.