Some financial advisors advocate no credit cards at all. For many years I was in that camp, but my thoughts have changed over the years. Credit cards are like money – they are amoral. That is to say, they they can be used for bad, but they can also be used for good.

Our Story

There was a period of about ten years when we didn’t use credit cards at all. We were $50,000 in debt, mostly due to credit cards we had used to keep our tech business going during some hard times. After we sold the business, we were woefully underemployed and drowning financially. We stopped using all credit and loans and slowly dug our way out. For many years after that, we continued to live using only cash or debit cards. I think it is totally a good idea to avoid credit if you are in that type of situation. It can be easy to fall back into overspending, if credit is easily available. Take a break and get yourself straightened out financially. Then re-evaluate whether you can handle a credit card.

Do you ever make pro/con lists? I love doing that when I’m evaluating a purchase or a decision. I am such a nerd. This would be my credit card pro/con list:

The Pros

Better Credit Score

Like it or not, our financial system is designed around the credit score. In order to get a good interest rate on your mortgage, rent an apartment, or get a cell phone you need a good credit score. It may not be a totally accurate reflection of what kind of risk you are as a borrower, but it is one that many institutions use. No credit score can be just as challenging as a bad credit score. There are ways around it, but they can be complicated. One of my friends had their car break down on a trip out of state. They could not find a rental car company that would rent to them because they didn’t have a credit card. They ended up renting a moving truck to get home. An easy way to build credit is to get a credit card and use it responsibly.

Rewards

There are some credit cards that have great rewards, usually for cash back or travel. Our main card that we use is the Chase Sapphire Preferred (affiliate link). We normally take several vacations a year, and the hotels are almost entirely paid for with our Chase points. Plus we get a $50 hotel credit every year. Their portal is super easy to use and their customer service have always been super kind and helpful.They also have some great travel and car insurance benefits. I wish I had known about credit card points back when we were financing an international adoption and building our own house. We could have racked up a massive amount of points!

Fraud Protection

In the event of your credit card being stolen or used fraudulently, your credit card issuer cannot hold you liable for more than $50. Many of them have zero liability. It may be a pain to have to close out and switch cards but you will not have to pay the charges.
Other Benefits
Many cards have great travel and rental car insurance perks, such as no foreign transaction fees, trip cancellation insurance, trip delay reimbursement. Some of them will also a year’s to the warranty of items bought on the card.

The Cons

Fees

You have to be aware of all the fees. If you aren’t going to use it much you should probably get one without an annual fee. You need to make sure that if the card you want to use has an annual fee it is worth it. Our Chase card has an annual fee of $95, but we get way more than that in value every year.

Interest

If you don’t pay it off every month, you are going to be hit with interest. Some of the interest rates can be quite high. If you carry a balance, the interest can very easily cancel out all the gain that you get from the points or cash back.

Overspending

It can be very easy to overspend when you use credit. People tend to be less mindful of cost when using a credit or debit card. Other people tend to blow it quicker if they have cash. Consider how you act when you shop with credit versus cash. Know which one is more challenging for you. I find it helpful to have my cards linked to my You Need a Budget app. When I purchase something on the card, it immediately deducts it from my budget. I am not surprised when the credit card statement shows up because all the expenses were already allocated at the time of purchase.

Can Negatively Affect Your Credit Score

Is it affect or effect? I can never remember. Anyway, if you don’t handle your credit card responsibly, your credit score can go down. In a future blog post, I’ll discuss the factors that make up your credit score and what you can do to improve your scores. If you have trouble paying it on time you may want to set it up on automatic payments and/or only use it for a few regularly scheduled transactions.

In summary, there are both benefits and disadvantages to credit cards. There is no right answer for everyone. If you find yourself in credit card debt that is not being paid off every month, it might be a good idea to stop using them until you can get that situation straightened out. No matter whether you use credit cards or not, the most important thing is to be mindful of your purchases and don’t let your use of credit cards or cash cause you to spend without thought.