If you’re trying to best manage your personal finances and want to best build up your credit, a credit card is a good choice. However, before you apply for a credit card, shop around first.
Figure out which is the best one for you. There are some advantages and disadvantages to credit cards, and while some balance each other out, others hold more weight.
Advantage #1: Buy now, pay later
Say there’s something that catches your eye, but your paycheck isn’t coming until later in the month. Having a credit card at hand would be useful to make that purchase.
However, you do need to be careful and make sure that this doesn’t lead to you making more purchases than you can afford, which leads to the first con.
Disadvantage #1: Buying more than you can afford
You have to be careful not to go on a shopping spree with your credit card, especially if your company gives you a high spending limit.
It can be tempting to let the charges pile up until you can afford to pay them, and next thing you know, you could be reaching your limit on one card and applying for another to make sure you can continue shopping.
Advantage #2: Points
Many credit card companies offer rewards points as you spend, and they can give you the chance to use these points towards some cool purchases, such as items from big name companies as Amazon and Best Buy. Some companies also offer you a large amount of points just to sign up, and that can certainly draw you in to choose their card.
Disadvantage #2: Some rewards are better than others
Though the allure of points might be key towards your decision to use a credit card, you have to be careful you don’t expect too much.
Many of the items can be purchased elsewhere, and sometimes for the same cost (or even less). Also, once you start racking up the bills, the points won’t be coming as fast.
Disadvantage #3: The minimum payment
Though you may start off with a low minimum payment each month, if you can’t pay off your bills and the total keeps increasing, so will that minimum payment.
Just because a card offers you a minimum payment of only $15 doesn’t mean it can stay that way. If you owe a couple of thousand dollars on a card, your minimum payment can increase to over $100.
Disadvantage #4: The APR
Another thing to watch out for is the credit cards that advertise a low APR. Like the minimum payment, that won’t necessarily last for long, and unlike the minimum payment, which will be lower as you pay off more, it’s harder to get your APR changed once the credit card company increases it.
However, you should keep an eye out on your mail, because they will occasionally offer you a lower APR for a short period of time (about six months) on new purchases. Your old APR will still be in place for the money you still owe.