The Pros and Cons of Owning a Credit Card

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With all of our science fiction shows and media warnings on identity theft, you would think that the ever present credit card is a permanent fixture in our futuristic world that sits right up there with our cell phones, rocket ships and internet access. Well, you think that if you’re a dinosaur like me and remember the pre-internet days when the only way you saw a movie was by paying your $4.50 on a Friday night and visiting the local movie theater.

Credit cards are an interesting development in the history of money because they go hand in hand with the mobility of our populations on global scale. A hundred years ago, the average’s person life was much less mobile. Whether you lived in a large city or on a farm, for the most part you shopped within a mile or two of where you lived. If you lived on a farm you might have waited two weeks to even a month before you did any type of shopping. As a result “credit” systems were relatively simple. A shopkeeper would give a farmer “credit” until the crops were harvested. You would take that one time of year to settle your debts. The shopkeeper would survive and the farmer could make their living. That’s a bit simple, but it speaks to our modern era. The first credit card came into use about the same time as transatlantic air travel. People needed someway for to spend their currency without taking along huge wads of cash or checks on banks someone wouldn’t recognize in the UK, France or Germany. Voila! The credit card. But let’s go a bit more in depth and check out the Pros and Cons of owning one!

Pros of owning Credit Cards

Our shrinking global village
It boggles the mind (at least to us dinosaurs) to think that we can get instant messages from Bangladesh, China and South Africa. The internet has truly collapsed our time frames and allowed people to communicate. As with all epochs when people start talking long enough, goods and services start exchanging. One of the largest advantages to using a credit card is that you can do so much business over the internet.

Protection
Using your credit card for purchases limits your risk in an ever evolving world of fraud and identity-theft. Frank Abagnale, an expert in fraud and risk from thirty years ago, mentions that the internet and credit cards make it much easier to steal people’s money in large quantities. Credit card companies have evolved as well. So if you someone does indeed get your card, they only have the legal limit of that card and most companies work hard to help you fight fraud and will work with you to resolve the issue.

Incentives
Due to the increased competition for consumer dollars, many credit cards offer point systems for benefits such as free flights. Other cards offer cash back rebates depending on the balance you have spent.

Travel
It isn’t just the internet that has made our global village small. Transatlantic flight started out as the luxury purchase of a few wealthy individuals. Before that, the purchase of a car was similar. Now the world is transformed with everyone traveling for business and pleasure. To accommodate that trend, credit cards make funds accessible, even willing to make exchange rates in some countries. You can also track your expenses on your statement if you need to maintain a record for your company or taxation.

Cons of owning credit cards

Consumer debt
With 48 million dollars in consumer credit card debt piled up even in the last year, the challenge to a credit card is that if your spending gets out of control, then you are buried in the consumer debt without a way to get out from under it. Beyond not being able to make the payment, consumers pay late charges. Some cards can charge as much as 29% on the money, making it difficult to ever touch anything but the interest in the payment.

Living over your means
Going hand in hand with the previous con, overspending is something you are tempted to do when you have a credit card. “Maybe I’ll have the money next month” is something that turns the latest Smart TV into a reality in your living room, but not necessarily because you afford one. It’s easier to shop when you don’t really see the money you give away and when you are an optimist hoping for the best in the future.

Credit card limits
Although some people use them responsibly, if you are in the habit of carrying large balances, and you have an emergency or want to travel, you are stuck because your credit limit has been reached.

Dent in making big purchases
Finally, when needing large purchases, such as cars or a house, lending institutions frown on large balances with credit cards because it demonstrates that the consumer is a credit risk, and not able to afford the item they are attempting to purchase.

So, in the end, Credit Cards are both good and bad and it’s up for us to reduce the Cons and instead make the Pros worth it!

Photo source: 401(K) 2012

11 COMMENTS

  1. The only downside for me is the security breaches which happened recently with my Target card. And I’ve had my credit card info stolen before which is scary. But I get so many benefits (points/bonuses from the card), plus it’s easier to track. I’m not the type of person who overspends so I’m not worried about living above my means.

  2. I have come to hate them. They make you believe you can’t live without one, but once you are no longer a puppet ( is it the red pill?) , you can live without them. We cancelled all ours except one and an Amex. Rarely use either, no cash, no purchase..

    • The fact that you’re now living in Europe certainly makes it a lot easier and less awkward to run on “cash only” mode. In Romania, none of my friends has a credit card, for example!

  3. We’re conflicted about credit cards in our house. We feel like we’re gaming the system with travel hacking, but it’s difficult to say whether we’re spending more with plastic than we would with cash. Evidence is mixed in the research: you can find studies that will tell you what you want to hear.

    Additionally, I am torn on the idea of promoting them on my site. It would earn me money, but I would potentially be putting cards in the hands of people who would acquire debt.

    • A supermarket that we kept shopping at had fidelity cards that rewarded you points for purchases and once per year you could trade those points for various things – we’ve got a vacuum cleaner this way, some pans and some bowls. We were extremely happy. Until I decided to check out a different supermarket and, obviously, I found out that their prices were a bit lower, but offered no “bonus” points. In the end, we learned that we were paying a bit more on everything to get the “freebies”. This might be the case of credit cards too.

  4. Hello: Time for me to chime in! It’s all a matter of self control. You know you have to pay the piper. No one should expect a free ride! Realize you will have to pay a premium, if you use plastic. I never (or seldom) carry cash. Why(?), because of muggers and robbers (here in the good ole U.S. of A.) If I get hit over the head (or shot) my money (cash) would be history! No one is going to return my “greenbacks.” (Note: I either use mass transit or walk, so I don’t have the luxury and safety of being in my own space [car], as it were.) The credit and debit cards are quickly (assuming I am not dead;-) cancelled, and any false charges are reversed or credited back.
    Target and the other US retailers who’ve been hacked need to “man-up” and admit they screwed up, royally! There’s no excuse, in this day and age, with cyber threats known to exist by the large retailers, for their security to be so easily compromised.
    Now with Windows XP no longer being supported by Microsoft, the retailers need to address upgrading ASAP their POS systems! Also, the banks need to hurry up and start issuing credit and debit cards with electronic chips, like the EU. The US is still using magnetic strips, for God’s sake! Sorry, but just one more reason to want to pull up stakes.
    Thanks for this fine blog, “C.”
    ~Teil

    • Yes, it should be a constant race to be just one step ahead of those trying to hack the system and get your info or assets. I do believe that debit cards are actually a better choice than purchasing on credit. Until recently, in Romania, banks would even give you interest (very small rates, but still interest) on money that you had on your debit card at the end of the month, there was no risk of spending money that you didn’t have and if you were mugged, they couldn’t use it because you can’t use a debit card (at least here) without inserting a PIN code.

  5. Just wire transferred funds to Romania and paid a high exchange. Anyone have ideas or thoughts on how to get the best exchange rate on our retirement or moneys being converted to Lei or Euro?

    • I’m so glad you’re here Otto, as you ask some very useful questions that deal with the kinds of things any of us will need to know; especially those who are planning to live in Romania, full or part-time in the near future. Below is some assorted info I found that may or may not be helpful. Regardless, I’ll keep looking and advise and Otto, if you or anyone else reading this (you too Calin) finds or has more info, please share here. Long term it would seem the best solution to open a local account, but then still there is the question of with which bank and how to transfer the funds from your American bank with a minimum of fees and additional costs.

      This person lives in Bucharest and I find her answer to similar questions on Quora here:
      https://www.quora.com/Do-you-have-to-be-a-resident-to-open-up-a-bank-account-in-Romania

      This is what she said:
      Diana Crețu, born & living.
      Written 19 Apr 2016
      No, you don’t have to. You can open a bank account in Romania if you are not a resident. The National Bank Regulation no. 4/2005 stipulates that:
      “Non-residents can open and hold accounts in foreign currency and local currency (leu) in credit institutions”.

      I also found this:
      BCR – Banca Comerciala Romana SA is the only bank that will open up a bank account, even without the residency card, just using your passport ! The thing is that the card will arrive 5 to 7 days later, so it’s not recomended for a 7 day vacation ! They also offer the 0 % commision for students, native of freshly-arrived-foreigners if they are enrolled in a public school !

      Check your own savings account ( or other accounts that you have ) which is linked to an ordinary ATM card.
      On the reverse side may indicate a logo of “Plus” or “Cirrus”. If there is none, check with your bank.
      These logos indicate that the ATM card can be used overseas.To use it, you will need to verify with your bank if the card’s magnetic stripe has been activated for overseas use. Citibank savings account holders seem to have no transaction fees except for exchange rates. There seems to be an advantage to using a Citibank ATM linked to a savings account, and Citibank does have relationships with some of the local banks in Romania.

      • Hello JC,

        You can indeed open a bank account without being a resident, but you need a Romanian address in order to do so (signing a lease beforehand is required). The family that moved here from the US had no problems using their cards in Romania.

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