Guest post: Credit cards – Is the financial force with or against you?

Y’all know I’m a big fan of credit cards (when used sensibly). Today’s post weighs up both sides of the coin – the dark and light, if you will.

It’s not only superheroes who need to be cautioned that with great power comes great responsibility; those looking to wield the power of the plastic would be well advised to take this maxim to heart too. Credit cards have the capacity to provide the wellspring for the ultimate in spending convenience and they can just as easily coax you into a crippling state of debt. How you choose to use them is of course entirely up to you, but before you begin to wield the financial equivalent of The Force, perhaps it’s a good idea to get to grips with both the light and the dark side of these controversy courting little cards.

Welcome to the Dark Side – The disadvantages of credit cards

“The Dark Side of the Force is the pathway to many abilities some consider to be unnatural.” – Star Wars

By allowing you to spend more money than you actually have, credit cards can fast fuel your descent into the dark side of debt. Letting your self-control slip when it comes to spending is what credit card firms capitalize on because this is where they make their money. The more you spend and the longer you go without repaying what you owe the more interest they will charge. It’s not uncommon for credit card firms to charge up to 20% interest on unpaid balances, which is why those careless with their credit cards can very easily find themselves on a very slippery slope that leads to ever deepening debt and if ridden long enough, even bankruptcy.

If you do find yourself falling behind on your payments, it’s not only your bank account that will take a beating but your credit rating as well. This will make it increasingly more difficult to apply for loans, rentals or even find a good a job. It’s the kind of damage that once done is very difficult to undo.

Budgeting can become a bit of a nightmare because the temptation to buy now and pay later can give you a false and misleading sense of security. Regardless of the balance in your current account, credit cards allow you to charge up to the maximum limit allowed – which for the undisciplined is a perfect recipe for sliding into the red.

Over 5.5 billion dollars was fraudulently stolen from credit cards worldwide in 2012, making credit card theft and credit card fraud a very real danger. What’s more, as technology increases to grow in sophistication the problem looks set only to get worse. In many cases victims of credit card fraud don’t even realize that they’ve been stolen from until they receive their monthly statement, which makes it essential to check your monthly statement scrupulously for any additional and suspicious charges.

Welcome to the light side – The advantages of credit cards

Use the force, responsibly you must.

It’s not all doom and gloom, however. If the force is strong with you and you use credit cards responsibly – by keeping track of all your purchases, sticking to your budget, paying off your end of month balance on time and in full and being vigilant over who you give your credit card information to – they offer a wealth of advantages.

Provided you commit to paying your balance on time, credit cards make paying for purchases easy and relatively effortless. It’s also a great comfort not having to walk around like a cartel kingpin with rolls of cash stuffed down your socks every time you need to make a big purchase. Furthermore, things like booking into a hotel, reserving flights and renting cars whilst on vacation are so much easier if you have a credit card.

Used responsibly, credit cards will help you to establish a good credit history. This will you put you in good stead when you need to achieve favorable terms on taking out a home loan, for example. If banks can see that you manage your money well and you’re dependable with your repayments they will be much more eager to extend their borrowing services to you.

Most credit card companies offer a host of rewards in the form of points that you can redeem down the line in return for goods and services, such as airline miles or discounts at hotels. Whilst credit card point systems shouldn’t be your primary focus when opting to get a credit card, it never hurts to look into what kind of rewards they offer.

One of the most worthwhile benefits of a credit card has to be its ability to come through in an emergency. Nothing can rival the power of the plastic in a situation where you need to make payment fast but have no cash on hand.

Just as with any young apprentice learning the way of the force, a money master would not fail to point out that it’s never really about the card. After all, a credit card is just a tool. It is the qualities inherent in the wielder of the tool that determine whether it will be used sensibly for good, or conversely, send you off on a debt ridden path towards the dark side.

Toby Adams is a professional copywriter based in Auckland, New Zealand, who enjoys writing about a wide variety of topics including travel, finance, health, education and much more.

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