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Advantages
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Disadvantages
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Convenience--
Credit cards can save you time
and trouble--no searching for an ATM or keeping
cash on-hand.
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Overuse--
Revolving credit makes it easy
to spend beyond your means.
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Record keeping--
Credit card statements can help
you track your expenses. Some cards even provide
year-end summaries that really help out at tax
time.
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Paperwork--
You'll need to save your
receipts and check them against your statement each
month. This is a good way to ensure that you
haven't been overcharged.
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Low-cost loans--
You can use revolving credit to
save today (e.g., at a one-day sale), when
available cash is a week away.
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High-cost fees--
Your purchase will suddenly
become much more expensive if you carry a balance
or miss a payment.
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Instant cash--
Cash advances are quick and
convenient, putting cash in your hand when you need
it.
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Unexpected fees--
Typically, you'll pay
between 2 and 4 percent just to get the cash
advance; also cash advances usually carry high
interest rates.
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Perks--
From frequent flier miles to
discounts on automobiles, there is a program out
there for everyone. Many credit card companies
offer incentive programs based on the amount of
purchases you make.
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No free lunch--
The high interest rates and
annual fees associated with credit cards often
outweigh the benefits received. Savings offered by
credit cards can often be obtained
elsewhere.
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Build positive
credit--
Controlled use of a credit card
can help you establish credit for the first time or
rebuild credit if you've had problems in the
past--as long as you stay within your means and pay
your bills on time.
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Deepening your debt--
Consumers are using credit more
than ever before. If you charge freely, you may
quickly find yourself in over your head--as your
balance increases, so do your monthly minimum
payments.
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Purchase protection
--Most credit card companies
will handle disputes for you. If a merchant
won't take back a defective product, check
with your credit card company.
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Homework--
It's up to you to make sure you
receive proper credit for incorrect or fraudulent
charges.
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Balance surfing--
Many credit card companies offer
low introductory interest rates. These offers allow
you to move balances to lower-rate cards.
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Teaser rates--
Low introductory rates may be an
attractive option, but they last only for a limited
time. When the teaser rate expires, the interest
rate charged on your balance can jump
dramatically.
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Susan E. Thomas CPA