If you’re unsure about whether it is a good idea to obtain a credit card, then you’re not alone. Credit cards offer a variety of pros and cons, which could mean that whether they are worth having or not is a very personal decision.
For example, credit cards provide greater protection than cash or debit cards, as well as the opportunity to pay later for goods and services purchased today. They also offer rewards and the potential for cheap borrowing.
However, credit cards can also lead to overspending, interest costs and other charges if not managed correctly.
Therefore, for some people they could be helpful in managing their finances. But this may not always be the case.
With that in mind, here are some more details that could help you decide on whether having a credit card is worth it, given your own financial situation and attitude towards spending.
Credit card pros
One of the biggest draws of a credit card is its security versus cash and debit cards. For any item that costs £100 or more, using a credit card to pay for part or all of it means that you are protected under the Consumer Credit Act. This means that if there is a problem with a good or service, such as it fails to be delivered or is faulty, the credit card issuer is jointly liable with the retailer. As such, there is a significantly higher chance that you will get your money back should the purchase of a good or service go awry.
Paying for goods and services on a credit card provides you with payment flexibility. You do not need to have the money in your bank account to buy them today – as long as you are able to pay for them at a later date. This may make the purchase of larger items easier – especially if you are expecting an incoming payment in the near term.
It is possible to obtain a rewards credit card that helps you to maximise the benefits you receive on everyday spending. This could be in the form of cashback, or in vouchers for stores that you frequent. Rewards credit cards do not usually require any additional effort in order to obtain vouchers or cashback, which makes them an obvious choice for many consumers.
Money transfer credit cards allow you to borrow at a very competitive rate – often 0% – for a set time period. Although sometimes fees are charged, they are often less than the interest payments that would have been made on a personal loan. Therefore, credit cards can be a cheap way to borrow over a set time period.
Credit card cons
Since 40% of UK credit card holders fail to repay their balance in full each month, interest payments on debt are a common occurrence for many consumers. With credit card interest rates often being higher than other forms of debt outside of money transfer 0% periods, carrying a balance can be costly over the long run. As such, ensuring that you repay your balance in full each month is a good idea.
Because credit cards do not require you to have the money in your bank account at the time of purchase, it is easy to live beyond your means. This can lead to interest payments, as well as a cycle of new borrowing to pay for existing debt. Monitoring your spending and having a budget can help you to avoid unnecessary costs.
Credit cards can charge a variety of fees, such as late payment fees, charges when withdrawing cash, and annual fees. For consumers who are unaware of such fees, they may come as a shock when they appear on a statement for the first time. Familiarising yourself with all of the fees that may be charged by a credit card issuer could help you to avoid the situations where they may be levied.
Verdict: are credit cards worth it?
Whether a credit card is worth obtaining or not comes down to how you will use it. They have a number of advantages and can be beneficial to a wide range of consumers. However, they can also be detrimental to your financial situation in some scenarios, such as where a balance is not repaid in full.
Therefore, if you are the kind of person who is super-organised and on-the-ball when it comes to your personal finances, a credit card’s pros could outweigh its cons. On the other hand, if you’re less organised when it comes to financial matters, a credit card could end up costing you more money than it is worth in the long run.
