Our society have a love and hate relationship with credit cards. On one hand, we love the convenience and the ease of use but on the other, the convenience have destroyed so many family’s dream of financial independence.
Today, let’s recap on the basics of the good and the bad.
Loving Credit Cards
- Float – The float is simply the time from the date of purchase until the payment date. If you time it correctly, you can theoretically get a free loan for as long as two months. How great is that?
- Convenience – Who doesn’t like how easy it is to purchase with a credit card? Can you imagine the old days when we all had to go to the bank, withdraw cash, and then go to a store to buy a big ticket item?
- 0% Balance Transfers – For those that can take advantage of it, 0% balance transfers are a great way to reduce interest payments. While most people end up getting into trouble with these offers, it is great if you can use it to your advantage.
- Rewards – Rewards are another source of free money. Most credit cards give you at least 1% back on your purchases and some even give more than that. If you were going to buy something anyway, why not get a discount?
Credit Card Hatred
- Loan – Look. Using credit cards are just like taking out a loan. Credit card companies are out to make money and if you forget that for even one second, you are in for a big surprise.
- Too convenient – The convenience of a credit card can often backfire. There are studies that show consumers with credit cards are less sensitive to their purchases than ones with cash. Would you buy that bottle of wine if you had to drive to the bank to withdraw cash first?
- Unclear Payment Plan – Most people have no idea how much interest they are paying if they only pay the minimum payment. If the repayment schedule and interests are all laid out, many will not get into so much trouble because the $1,000 purchase probably costs $2,000.
- Interest Rates – Credit card companies have variable interest rates. If you miss just one payment, chances are high that your interest rates will jack way up. Not having control is the primary reason you should stop using credit cards because you just have no idea what they will charge.
- Fees – Credit card companies have fees. Annual fees, late fees, overcharge fees are all fair game and worst of all, you usually don’t know about them until they charge you. It’s in the fine print alright but most people don’t bother and they probably can’t find it even if they try.
The Key to Loving Credit Cards
Once you start talking to people about credit cards, it’s easy to see that responsible use of credit cards is a key to taking advantage of them. It’s very tempting to be irresponsible but like a famous comic said “with power comes responsibility.
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You’re right on about responsible use of credit cards being the key to having success with them.
An additional bullet point under the “loving credit cards” section would be that they play a major role in determining your credit score. Responsible use of revolving credit can lead to a lower score and the best interest rate possible for major loans on homes and cars.
Ryan, the “Credit Score” that seems so important to some people is the biggest myth in our society. Your credit score can only be discovered if you pay for it, or if you are taking out a loan and the lender tells you what it is. So it is not Your credit score at all. Lenders can affect it by repeatedly making inquirys without your knowledge or written permission (although you can limit this). Everyone says that they are important, but bottom line, if you have very little debt, a large healthy savings and no defaults on your credit, lenders will make you the loan. We have become slaves to this idea of “scoring”. It needs to stop.