A credit card can be very useful for building credit and for financial success, yet at the same time, credit cards are often a major culprit for debt and bankruptcy. This article highlights some of the advantages and disadvantages that come with owning and using a credit card.
Credit card advantages:
1. They can simplify travel plans. Certain aspects of travel, such as a rental car or hotel reservation, often need a credit card on file for incidentals. For companies that don’t require this, a cash deposit or debit card might be used, which can be a major disadvantage as it ties up some of your money in the meantime.
2. The ability to buy what you can’t afford now, but will be able to soon. This is probably one of the most obvious benefits of a credit card, and is often what drives someone to apply for one in the first place. But at the same time, this can be problematic if you are unable to come up with the money to pay off the balance.
3. You can establish your credit. When managed properly, a credit card can be a great way to establish a good credit score. Good credit is essential for larger purchases and loans, such as mortgages and auto loans.
4. You will have a backup should an emergency ever arise. Even if you have no intentions of using your credit card, having one on hand can be beneficial for emergencies—for example, unexpected car repairs or a sudden illness.
Credit card disadvantages:
1. The never-ending mountain of debt. Many debtors opt for just paying the minimum payment each month, but with a large balance, and this makes it very difficult to ever make a dent in the overall balance because the majority of a minimum payment usually goes towards interest costs.
2. You risk harming your credit score. Just as a credit card can help establish good credit, being late, missing payments, or charging too much can also help to destroy it. If you have a decent credit score and already have a mortgage and car loan, you might be better off steering clear of obtaining a credit card unless it is absolutely necessary.
3. Penalty risks. Your credit card may have a terrific interest rate initially, but just a few missed or latest payments can tremendously increase that interest rate. As a result, your overall balance may double due to penalty fees and increased interest rates.
4. Spending too much. Nothing makes spending simpler than a credit card, since you can just purchase what you want now without having the cash upfront. But this can make it easy to buy things that you actually can’t afford, especially with high interest rates.
If you are in a substantial amount of credit card debt and you’re having difficulties keeping up with minimum payments in addition to your other monthly expenses, we want to help. At Peachtree Financial Solutions, we specialize in buying payments from annuities. If you are receiving structured settlement payments, you have the option of selling some or all of your future payments and receiving a cash payout. By receiving all of your money upfront in the form of a lump sum payment, you can have the financial freedom to catch up on bills and other expenses. Many of our customers have completely eliminated their debt with the lump sum payment they receive from us. To learn more about how selling annuity payments can get you cash now, contact Peachtree Financial Solutions today!
Nothing above is meant to provide financial or tax advice, you should meet with appropriate professionals for such services.