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.
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.
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.
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
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