The Advantages & Disadvantages of Credit Cards

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Do we really need credit cards or can we get along without them? At first, it doesn’t seem like a bad idea. You’d have one less bill to worry about each month and your finances might be in better shape without the temptation to overspend and potentially accumulate more debt. But there are some major advantages to having a credit card or two—they’re convenient to use, can get you out of sticky emergency situations, and are a useful credit-building tool just for starters. 

If you’re considering skipping credit cards, you’ll have to consider both the pros and cons of credit cards. To help you make a decision, we’ve broken down the advantages and disadvantages of credit cards and what to consider specifically if you do choose to get one, so you minimize your risks. Use the links below to learn more about the specific advantages and disadvantages of credit cards. 


Disadvantages of Credit Cards

First things first, let’s address some of the doubts you may be having by acknowledging some of the potential disadvantages of having a credit card.

1. Temptation to Overspend

For those who tend to allow their spending habits to get out of control or struggle with a shopping addiction, a credit card can be another source of temptation that could worsen the problem. When you shop with cash (or the money in your bank), you’re more likely to consider the cost of an item first because it’s a finite resource.

2. Accumulating Debt

If you have cards with large credit limits, it can be tempting to spend more than you can afford to pay off. Even if you carry only a small balance each month, this might eventually snowball into bigger debt.

3. High Interest Rates

One of the biggest disadvantages of credit cards is the fact that you have to pay interest on purchases, and typically, these interest rates are fairly steep (unless you get a special offer or have exceptional credit). This means that you’ll pay more for everything you purchase using your credit card and the longer you wait to pay off your balance, the more interest you’ll accrue.

4. Annual Fees

In addition to paying interest on all purchases, many credit cards also have annual fees. Annual fees are charged by your bank or credit card company and are added to your statement once a year.

5. Potential for Theft or Fraud

Simply by having one, a credit card opens you up to another avenue of fraud—especially if you tend to use it for online purchases without checking the security of the site.

6. Careful Monitoring Required

It can often be easier for theft or fraud to slip by unnoticed with credit cards as opposed to our bank accounts. Plus, you’d be surprised how quickly swiping your card and interest can add up. That’s why it’s important to closely monitor your statements, which is something you’ll have to take the time to do every month. 

7. Late Fees

Many credit cards have steep late fees that can add up on your statement. If you’re unorganized or are known to make late payments, this could be a major disadvantage to consider.

8. Complex Terms 

Often, credit card terms can be confusing and difficult to nail down. However, many people neglect to read the fine print and end up owing a lot more than they bargained for.

9. Potential for Harm to Your Credit Score

Your credit score is an important part of your financial stability— lenders, landlords, and even employers may review your credit score to determine your reliability. Having one or more credit cards can open the door to potentially doing harm to your credit score by missing payments, exceeding your credit limit, and more.

10. Reduced Discretionary Income

Since you have to make a credit card payment every month, your discretionary income is reduced. And, the higher the balance carried on your credit card, the higher your monthly payment, meaning you get to keep less of your paycheck to put towards fun and necessities.

Some people choose not to carry credit cards because they’re simply one more thing to worry about. It’s true that when you carry plastic, you have to worry about keeping your balance low, paying off the debt and making payments on time—as well as keeping that card safe from scammers and thieves. Before you cancel your credit card, read on about the advantages of credit cards.

Advantages of Credit Cards 

Having a credit card can come in handy for many reasons, including: 

1. Build Your Credit History

Credit card use is a major factor in many people’s credit reports. Having a credit card can help you build your credit history and prove yourself as a responsible borrower, which can come in handy later down the line. 

2. Access to Emergency Funds 

Having a credit card tucked away can give you a sense of security. You’ll be able to use your available credit limit to cover necessities if something comes up, like your car breaking down and needing an unexpected repair. 

3. Flexibility to Pay Over Time

With a credit card, you can buy now and pay later on big purchases like furniture, booking accommodations, or car repairs. This gives you more time to pay for these expenditures over time. While you might end up spending a bit more because of interest, it may be worthwhile if you don’t have to delay your purchase.

4. Cash Advances

While credit cards offer you flexibility in making essential purchases on your credit line instead of up-front in cash, they also allow you to take out cash advances when necessary. Cash advances can be useful when it comes to expenses that can’t be paid with a credit card, like your rent.

5. Convenience

Wondering when to use a credit card? There are certain circumstances where it may benefit you to do so, or you might not have any other choice. Many hotels and car rental services require that you have a credit card to book a reservation. Cruise lines also link their own version of spending cards to your credit card, and some airlines ask for a credit card for in-flight purchases. You may be able to find a travel business willing to take a debit card instead, but making a reservation with a debit card can result in a hold of several hundred dollars being placed on the card. If you don’t have a lot of money in your account, this could be a problem.

6. Lower-Cost Borrowing Compared to Loans

Credit cards can be a lower-cost alternative to taking out loans if you have a credit card with a fairly high limit. Need to pay your tuition but your paycheck is delayed? Your credit card can cover the necessary expense in the meantime. Just be sure to pay the expense off in full to avoid having a high balance sitting on your credit card.

7. Earn Rewards

There are many rewards credit cards that allow you to earn while you spend. From flight miles and hotel perks to credit towards your statement, rewards cards can offer many benefits for the responsible credit card holder.

8. Better Currency Conversion & Foreign Transaction Fees

Did you know there are actually some cons of debit cards? If you’ve traveled, you’ll know that you can actually lose quite a bit of money due to currency conversion and foreign transaction fees through your bank. However, many credit cards offer better exchange rates and some even eliminate foreign transaction fees altogether. 

9. Fraud Protection 

While credit cards might be another avenue for someone to commit fraud, credit cards are also backed by theft protection. This means that if you catch and report the fraud on your card, you will not be held liable.

10. Improved Financial Literacy

Managing credit card debt is a valuable lesson in financial literacy. Not only will you gain a better understanding of interest, credit building, and more, but you’ll be able to practice responsible money management and learn good credit habits

As you can see, there are plenty of good reasons to have a credit card. Learn more about the advantages and disadvantages of credit cards and their differences from debit cards by visiting

Deciding Whether or Not to Get a Credit Card: Factors to Consider 

Now that you have a better idea of the pros and cons of credit cards, you probably have made your decision as to whether you’re leaning towards getting one or steering clear. If you’ve weighed the advantages and disadvantages of credit cards and decided that it’s worth assuming a little bit of risk to enjoy the benefits of using a credit card, you’ll quickly realize that you have a lot of choices.

When browsing through credit card offers, there are some important factors you should consider before settling on your credit card of choice: 

  • APR: Compare credit card interest rates. Finding a low interest rate, especially ones with 0% interest for a year or more, can save you a lot of money in the long run.
  • Annual Fees: Try to find a card with no annual fee, or at least a low annual fee. That way, you’re not simply throwing money away.
  • Credit card limit: Depending on the types of expenditures you intend to use your credit card for, a higher credit card limit could be important. However, keep in mind that the higher the limit, the more debt you can rack up.
  • Introductory offer: Many credit cards offer introductory offers that can be well worth signing up for such as hundreds of dollars in credit toward your statement balance, a large points bonus that can go toward air miles or other perks, and more.

    If You Forgo Getting a Credit Card

    If you do decide to forgo credit cards, a few steps can make your life easier:

    • Create a Budget: Create a budget and stick to it. Without credit to rely on, it’s important to make sure you have the money you need on-hand. If you haven’t already crafted a monthly budget, consider starting out with something simple, like the 50/30/20 method. This will help you determine how much of your after-tax monthly income you have to spend in three different categories: essentials, wants, and savings. Check out our calculator below to see how your budget might look.
    • Build an Emergency Fund: Aim to have three to six months’ worth of expenses in your savings account so you’ll be covered for life’s surprises.
    • Look Elsewhere to Build Credit: Eschewing credit cards doesn’t automatically mean you’ll have a bad credit score. Look for other credit products—like retail cards or small personal loans—to help you build credit.
    • Use a Debit Card Instead of Cash: Debit cards offer more protection in case your wallet is stolen. If someone steals your cash, you’re out of luck.

    Key Takeaways for the Pros & Cons of Credit Cards

    • There are some important disadvantages to consider before becoming a credit card holder such as accumulating debt, developing poor spending habits, and dealing with confusing terms and fees.
    • There are many benefits of credit cards including building your credit, having an alternative to traditional loans, and earning rewards that can pay off big time.
    • Getting a credit card is a personal decision, so the advantages and disadvantages of credit cards should be carefully weighed.
    • If you are going to get a credit card, you should thoroughly research your options by comparing various cards and their terms. 
    • If you decide not to get a credit card, you need to make extra effort to build an efficient budget, save for emergencies, and find other ways to build your credit history.


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