By Brigitte Yuille

The ease in swiping a credit card for a purchase has its pros and cons. It may either help when handled properly or become a detriment. If you are able to pay your bills on time every month and not carry over a balance, credit cards are a great convenience. The cards can also land you deep in debt. This often occurs if you're unaware of the terms of the credit card agreement, and if you carry too many cards.
Pros

  • You can use them practically everywhere, especially overseas.
  • They can boost your purchasing power because they can be used to buy goods and services over the phone, through the mail and online.
  • They provide financial backup in the event of an emergency, such as an unexpected healthcare cost, job loss or auto repair.
  • They allow you to purchase items and pay them off in monthly installments. They offer discounts at stores and rewards. For instance, when you make purchases using the credit card you can collect points; these points accumulate and can be used to get free items, such as airline tickets.
  • Some cards may offer cash back as an incentive to use the card.
  • They can help build your credit history.
  • They keep a record of your expenses, helping you to monitor your financial activities.
  • They help raise your credit score, such as the FICO credit score, when you pay balances down by the due date. This improved credit history paves the way for lower rates borrowing rates on other loans, including a mortgage.
  • Credit cards allow you the right to dispute billing errors and defective merchandise.
  • They allow you withhold payments.
Cons

  • Credit cards can have their disadvantages, though, especially when they're used in an unwise manner.
  • Some consumers feel compelled to spend more money than they have.
  • Consumers may continuously roll over a balance for several months.
  • When you default on credit card payments, you are charged with late fees and interest, increasing your debt load.
  • Carrying a large amount of credit cards also isn't too favorable in the eyes of lenders.
  • Acquiring too much credit card debt can ruin your credit score.
  • Studies have indicated credit card debt as a significant factor in consumer bankruptcies.
  • Credit card fraud is a possibility.
Avoiding Credit Card Pitfalls
In order to avoid the pitfalls of credit cards and maximize their benefits do the following:


1. Keep track of your purchases by closely reviewing your monthly statements.
2.
Have a budget and avoid overspending.
3.
Make an effort to pay off credit card balances at the end of the month.
4.
Make purchases with reliable companies and take extra precautions when making purchases online.
5.
Report stolen cards immediately to the credit card company.

Next: Credit Cards: Choosing A Credit Card »

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