The Pros and Cons of Credit Cards

Photo of a young woman at a laptop making on online purchase with a credit card.

For many people, getting a credit card is their first real foray into the world of personal finance. Sure, you may have earned money and spent it before, maybe made a mini-budget or two, but with access to credit, now you’re approaching a real fork in the road. Make a wrong turn now, and you’re on your path to money stress for years to come.

Here’s what you need to know about credit cards. 


Carrying a balance means you get your credit card bill, perhaps you’ve spent $200 on it in the first month, and they tell you that the minimum payment due might be $20 so you pay just a little more, maybe $50, leaving you with a balance outstanding of $150. That $150 balance now gets carried over to the next billing cycle. When you don’t bring your balance outstanding down to $0, you are now carrying a balance, and paying a massive interest rate on the money you owe. And because credit card interest rates are so high compared to other forms of debt (like a mortgage, or line of credit), if you have to carry debt, it better not be on a credit card. 

We’ll go over the general pros and cons of credit cards, but we’ll start with the cons first. Sometimes people get too caught up on the pros, but the pros will not change your life. The cons can.

The Bad

Credit cards make spending money easier: When you pay with cash or a debit card, you tend to feel it more when you make a transaction. You are much more aware of how much money you have left in your bank account. But when you pay with a credit card, the pain of money leaving you doesn’t happen until about 30 days later, when you get your credit card bill. It’s easier to spend money when we don’t think about actually having to fork over the money until later. This can lead to piling up high-interest debt. Once you go down this road too far, you may never get out. It has the potential to financially cripple you forever.

You can kill your credit worthiness: Keep up the bad habits, and your ability to borrow money down the road for major life goals could be threatened. Like buying a home. You might be less attractive as a renter to a landlord as well, and more and more employers are asking to see your credit report as a means to gauge your overall responsibility level.

Reward programs “work”: They work in the sense that they reward spending. That means you are more likely to spend more than you need to, because earning points feels good, like with a video game, or likes on Instagram.

Rewards programs don’t work: A lot of people get infatuated with rewards programs, but on average they might work out to a 2% bonus on the money that you spend. Unless you carry a balance on your credit cards. The interest owed, sometimes north of 20%, destroy any and all benefits of rewards programs, no matter how generous. If you carry a balance, rewards programs are irrelevant.

The Good

When used responsibly (not carrying a balance, and not spending more than you would otherwise), credit cards have some great features that you can and should take advantage of.

Extra protection: Many cards offer extended warranties on purchase you make using your credit card. For example, if you buy an electronics item that normally has a 1-year warranty, your card might add an extra year of coverage that the card takes care of instead of the manufacturer. Other cards might offer travel insurance, trip interruption coverage, and rental car insurance. Be sure to pick a card that is matched to your needs.

Reward programs might save you some money: With the big caveat of not carrying balances, and not spending more than normal, rewards programs can at least give you a bit more bang for your buck. But for most people, and interest paid on balances or extra spending probably negates even the best rewards out there.

You can establish a credit history: Done right, you can improve your chances of getting a major loan for a big life goal like buying a house. Done wrong, and you can kiss those dreams goodbye. Be careful!