What is the use of credit cards?

credit card useCredit cards can be very useful and most people have at least one credit card to their name. Credit cards can be a help with large expenses or even help pay for daily expenses when the cash flow is hindered.

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Although credit cards can be incredibly helpful, they do come with a few warnings. Using credit cards unwisely or can transform their help into harm for your overall financial situation.

What are ways credit cards can help finances?

Perhaps the biggest way credit cards can be helpful to finances is when the finances are in a pinch. This has come into play with the tough economy, as more people may have to turn to credit cards just to pay for their daily expenses such as food and necessities.

The U.S. Census Bureau said the total number of people holding credit cards increased in 2010, according to a Hoffman Brinker, although the overall number of credit cards has declined. There was also an increase in the overall volume of credit card purchases and a small decline in outstanding debt. Hoffman Brinker also noted that about 66% of the Americans have at least one credit card to their name.

In addition to helping with daily expenses, credit cards can be lifesavers for emergencies or major purchases for which no cash is readily available. Emergencies may include car or home repairs, veterinary and hospital bills while major purchases may include new vehicles, vacations, or loads of gifts during the holiday season.

Credit cards can be useful in other ways. They can offer protection on your purchases, such as not being required to pay for items that you charged to your credit card but never received, explains the Federal Trade Commission. Reward credit cards come with perks that can be beneficial and save you money overall.

Carrying a credit card can be safer than carrying around a lot of cash, notes the Mint.org. Credit cards can typically be cancelled immediately if they are lost or stolen. This ensures you will not be held responsible for purchases made after the credit cards are lost.

Holding a credit card can also build up your financial portfolio by establishing a solid credit history. A good credit score consists of paying off your debts in a timely fashion, which falls right into line with using credit cards wisely.

uses of credit cardsHow do I use credit cards wisely?

Using credit cards wisely means not biting off more than you can chew. Establishing a budget and knowing you need to use part of it to pay off your debts when they are due is a must. Even if you use credit cards to finance expensive purchases, being wise means making sure you can eventually pay what you owe.

You do not necessarily have to pay off the entire debt at once, but you do need to be aware of what payments are due and when to avoid late charges and other penalty fees. You also need to be aware of finance charges the credit card company will charge over the life of the debt, which can dramatically increase the overall amount you owe.

It’s also wise to fully read and understand all credit card holder agreements before you enter into them. Credit cards can charge a number of fees of which you may not be aware, such as a membership fee just for owning the card. Interest rates are a major thing to watch, as credit cards can come with a very low introductory credit card APR that turns into a higher rate after the introductory period has expired.

What constitutes unwise use of credit cards?

Several moves can contribute to the unwise use of credit cards. One is not calculating credit card payments into your monthly budget. You can get into big financial trouble if you fail to keep up payments on time. Late fees are nearly always a part of a credit card agreement, and they can add up quickly. Falling prey to temptation and thinking of credit cards as free money are two more major pitfalls of credit cards.

Since using a credit card means you are not actually handling cash, it may be easier to charge large purchases or items you do not really need as it can seem like it’s not costing you anything at the moment. Credit cards are not free money; you will eventually have to pay. Quelling temptations, using credit cards wisely and understanding credit card agreements before you sign can help make credit cards helpful instead of harmful to your overall financial situation.

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