5 Pros and Cons of Credit Cards & How to Use Them Wisely
Christine Tan | May 25, 2023
Edited by Hannah Locklear
Summary: Understanding the benefits and pitfalls of credit cards will help you make smart financial choices. With responsible usage, you can use credit cards to your advantage, such as building your credit history and getting the financial assistance you need for emergency situations. If you’ve been sued for credit card debt, use SoloSuit to respond and settle the debt for good.
Having a credit card to your name can open many financial opportunities. You can use it to borrow funds for your small business or to purchase a specific high-ticket item. But a credit card can also trap you in never-ending debt, if used improperly.
The promises of sign-up bonuses and rewards for eligible purchases are very tempting for many consumers. It’s not surprising that credit cards have become a popular payment method among consumers.
In this article, we’ll explore the pros and cons of credit cards so you can make smart and informed choices, with a few tips for responsible use to avoid the pitfalls of spiraling credit card debt. And if you’ve already been sued for credit card debt, we’ll show you how you can settle the debt for good.
Credit cards are convenient: Credit cards make contactless payments possible – no need to carry cash or line up at the nearest ATM. You can also use your card to make online purchases from anywhere in the world.
Safe credit card use helps build your credit score: If you use your credit card wisely, you will be able to build your credit history and improve your credit score. To build your credit score, you must pay your credit card bills on time and keep your credit card utilization low. Remember, a good credit score will help you easily qualify for loans, such as personal loans or car loans, at affordable interest rates.
Most credits cards offer rewards programs and cashback offers: Most credit card companies offer credit card account opening bonuses to entice customers. On top of that, you can also earn miles, cashback, or rewards points depending on the type of credit card you have. For example, the AMEX Singapore Airlines KrisFlyer Credit card helps you earn miles points.
Credit cards protect against fraudulent activity: The number one concern of many credit card holders is credit card fraud which can, unfortunately, happen to anyone. The good news? Many credit card issuers provide consumer protection against fraud and theft. This protection also covers you from damages on eligible purchases charged through your card.
Credit cards can be a good financial safety net: You can also use your card if you don't have immediate access to cash or if you have insufficient savings in case of emergency expenses.
5 cons of credit cards
Credit cards have high interest rates and fees: The average credit card interest rate is nearly 25%, which is higher than most personal loans. If you only pay the minimum required payment and carry a balance the next month, you'll be incurring interest. Aside from interest, you may also incur fees, such as annual fees and balance transfer fees.
You might overspend with a credit card: Most credit cards have a credit limit, so you might be tempted to spend that amount. If you don't keep track of your spending, you might end up accumulating more debt than you can afford.
Irresponsible credit card use can hurt your credit score: If you keep spending over the credit limit and only paying the minimum required payment can hurt your credit score.
Credit card use can lead to spiraling debt: Your credit card isn't an extension of your budget. You will have to pay for all the transactions charged to your credit card so if you overspend. You might end up facing more debt which can cause a financial burden.
Many credit cards charge high annual fees: Aside from interest rates, you also need to pay an annual fee of around $150, depending on the credit card you have. Some credit cards waive the annual fee in the first year but you’ll have to pay for it in the succeeding years.
Use credit cards responsibly
Credit cards don’t have to be your enemy. As long as you mindfully utilize your credit card, it can actually be a great financial tool, helping you build your credit score and credit worthiness. Here are some ways you can use credit cards responsibly:
Spend within your means: It is best to charge expenses that you can afford in cash. This will help ensure that you can afford the repayment without paying any interest.
Make on-time payments: Keep track of the due dates of your credit card accounts. Missing payments can lead to hefty interest charges and late fees.
Set up auto pay bills: If you want to make sure that you won't miss any payment due dates, then set up auto payment. However, make sure that the bank account connected to the auto payment has enough balance to pay for your credit card bills.
Pay your balance in full: It's a good practice to pay your credit card balances in full instead of only paying the minimum required amount. If you only pay the minimum amount, you'll be carrying balances into the next month plus interest which can lead to more debt.
Understand your interest rates: Credit cards from different issuers can have different interest charges and fees. Choose one with low-interest charges and make sure that you understand how it works and when it is charged.
Don’t let your credit card debt rule your life. Exercise financial planning and self control, and be responsible with each line of credit.
Consider these alternatives to credit cards
Unfortunately, not everyone has the privilege of owning a credit card. This could be due to several reasons, including unstable employment or poor credit rating. So what are the alternatives?
Debit Cards: Unlike credit cards, every transaction charged to your debit card will be automatically deducted from your bank account balance. However, this means you don't have to worry about high interest rate charges and annual fees.
Personal Loan: Personal loans have lower interest rates around 11% to 14% compared to credit cards which are around 25%. You also don't have to worry about paying annual fees, balance transfer fees, and conversion fees when you take out a personal loan.
Secured Credit Card: You can open a credit card account by paying a cash deposit upfront – a kind of security deposit. Your credit limit is equal to the deposit amount. This is a good option if you want to start building your credit history and credit score.
Settle your credit card debt for good
Settling your debt is a great way to leave your financial struggles in the past and move forward.
Follow these three steps to settle your credit card debt:
Answer any pending credit card debt lawsuits. Filing an Answer into your case will help you avoid a default judgment, giving you time to negotiate a settlement agreement. Once you’ve filed your Answer with the court and send a copy to your creditor, you’re in an excellent position to begin the settlement negotiation process.
Send a settlement offer to start negotiations. Determine how much you can afford to pay in a lump-sum settlement. At a minimum, you should offer your creditor at least 60% of the value of your debt through settlement. If you can’t afford the 60%, list what you can pay and explain your situation in your offer to the creditor.Give them a few days to consider your offer. They will likely send a counteroffer, and you may go through several rounds of negotiation before reaching an agreement.
Get the debt settlement agreement in writing. Finally, when you have an agreement that you can fulfill and that the creditor accepts, make sure to get the agreement in writing. Typically, creditors will draft the debt settlement agreement document and file it into the court case. Getting everything in writing will protect you if your creditor attempts to further its collection actions against you on the same debt.
Sometimes, the prospect of negotiating with a debt collector like Midland Funding can seem intimidating. If you’re not comfortable handling the process yourself, reach out to the professionals for guidance. That way, you won’t have to face the debt collectors alone. SoloSettle can help with each of these steps and more.
Watch this guide to debt settlement to learn more about the three steps above:
Understanding the benefits and pitfalls of credit cards will help you make smart financial choices. With responsible usage, you can use credit cards to your advantage, such as building your credit history and getting the financial assistance you need for emergency situations. Here are some key takeaways:
When used responsibly, credit cards can help you build your credit history and improve your credit rating.
Pay your credit card balances on time to avoid late fees. It is advisable to pay off your balances in full so you don't have to pay interest.
A personal loan with a licensed money lender can provide you with a lump sum of cash at attractive interest rates without worrying about annual fees, balance transfer fees, and currency conversion fees.
If you’ve already been sued for credit card debt, it isn’t too late to resolve the matter through debt settlement. SoloSettle, powered by SoloSuit, makes the debt settlement process simple.
You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.
SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.
And 50% of our customers' cases have been dismissed in the past.
"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather