The Pros and Cons of Credit Cards

A couple makes a purchase.

Marko Geber / Getty Images

Credit cards have become an essential life tool. They can be used to make purchases you don't have the cash for, or to purchase something from a remote seller without having to wait for a physical check to be delivered.

If you’re trying to decide whether to get credit cards or nix them completely, consider the pros and cons and decide whether you truly need any.

The Truth About Credit Card Averages

Credit cards (and the misuse of them) are partially responsible for the large amount of debt that people carry on average in America. According to Experian, one of the three major credit bureaus, the average credit card balance at the start of 2021 was $5,525, a slight decrease in average credit card debt from the previous year. At the same time, Americans had an average of three credit cards.

Americans use credit card debt to finance many items in their lives. While there are advantages and disadvantages, it can be dangerous ground to tread. An awareness of the pros and cons can help you to decide how you want to use credit cards in your life and help you control the risks.

The Advantages of Credit Cards

They are very convenient to use. The majority of businesses accept credit cards, which means you don’t have to stop by the ATM to pull out cash before going out. Keep in mind that some places might not allow you to tip via credit card.

You have more purchasing options over the phone or internet, or in person. If you only have cash, you’re limited to in-person purchases unless you purchase money orders. The choices you have also means that you are able to quickly pay with your card and be on your way.

Pay Over Time

You have the ability to pay off your balance over a period of time. It's good practice to pay your credit card balance in full each billing period to avoid fees and interest. The exception is with charge cards, which require you to pay in full to keep your card in good standing.

Making payments over time can be beneficial if you need an item or service immediately but do not have the cash at that moment.

Rewards for Use

Some cards give you the ability to earn rewards that can be used for cash, gift cards, miles, or other merchandise. The more you use your credit card, the more rewards you earn. You can redeem your rewards as you go or save them.

Low Introductory Rates

Many credit cards come with 0% interest on purchases and balance transfers for an introductory period of at least six months. This gives you the ability to use your card initially and pay off your balance over time without incurring interest.

Security Features

Credit cards are more secure than traditional checking methods. If someone were to gain access to your checking account, they could drain it. You would then have to wait for the bank to process your fraud report and replace the funds.

If your is credit card is stolen, you'll have to wait for the card issuer to clear up the fraud, but you won't be cleaned out in the process.

Disputable Billing Errors

You have the right to withhold payment for billing errors (as long as you dispute the charges in writing). When there’s an error on your statement, you have the right to dispute it with the credit card issuer. In the meantime, you don’t have to pay for that purchase unless the credit card issuer’s investigation turns up evidence against you. 

Disadvantages of Credit Cards

With all the benefits that come along with using them, there are some drawbacks to using credit cards that may dissuade you from using them.

Credit cards extend your purchasing power by giving you a credit limit. This limit gives you the illusion that you have more money than you really do, because you can spend money you do not yet have, and may not get.

This illusion is what gets many people into unmanageable credit card debt. If your monthly income is $4,000, and your monthly expenditures are $3,000 you have $1,000 of income to set aside. A card limit of $6,000 gives you the ability to use $6,000 you would otherwise not save up for at least six months.

The dangers here are the interest and the inability to make payments that will reduce the balance.

Your Future Income is Reduced

Your income in the future is reduced each time you use a credit card, or any other form of debt, because you’re borrowing money that you don't have. A portion of your future income has to go toward repaying your credit card balance if you want to protect your credit.

The more debt you are in, the harder it becomes to pay off, or even pay down. Continuously using your card while making minimum payments increases your debt and decreases your future income.

Credit Card Interest, Fees, and Identity

Depending on your credit card rate and how you use it, credit cards can cost you hundreds of dollars over the course of a year. Understanding how compounding interest works and knowing your billing period can help you coordinate payments and avoid fees or increasing balances.

You'll be charged fees for making a late payment. Fees add up quickly, and they are added to your balance. This means your fees are then charged interest as well.

Having a credit card can put you at risk of credit card fraud. Thieves don’t have to steal your card to get your information. They can hack into a company's information network and steal personal information from thousands of customers, then use it to make fraudulent purchases. (You’re typically not liable as long as you report the charges right away.) However, even if you don't have a credit card, consumers are at risk of identity theft in which the fraudsters open a credit card in your name and charge purchases to the card.

Debt and Life Effects

You create more debt each time you use your credit card. You can keep the debt from growing by paying off your balance each month—but if you only make minimum payments and keep making purchases, your debt will quickly grow.

Your credit score is impacted by how you use your credit card. If you run up large card balances and pay your credit card late, your credit score will begin to drop. Low credit scores affect more than just your ability to purchase products and services—a low score can affect your professional life as well.

Low credit scores reduce your ability to obtain additional credit and can demonstrate to companies and employers that you might not be financially responsible.

Responsible Use and Emergencies

Credit card debt is a vicious cycle to get into and tough to get out of. It can all be avoided by not charging more than you can afford to pay off, and by making payments on time.

If used correctly (making your payments on time and keeping your balance low) credit cards help you build a good credit score that you can use to qualify for loans that you might need.

Credit cards are very handy in emergencies. While not the best option, a credit card can help you cover an unexpected expense if you can’t afford to pay it from savings. Significant vehicle repairs, home repairs, and replacing broken appliances are expenses that are generally required—credit cards can help when chosen wisely and used properly.

Frequently Asked Questions (FAQs)

When were credit cards invented?

Credit has been around in some form for thousands of years. Modern-day credit cards, however, were first introduced in 1950, when Diners Club rolled out the first charge card.

How many credit cards should I have?

The ideal number of cards for you comes down to your own spending habits and ability to pay off your credit. If you're new to credit cards, it's best to open one at a time and show that you can handle the responsibility each month. Spreading out how often you apply for credit will also give your credit score time to improve. Once you've shown that you can keep up with multiple credit cards, it's good to have a variety of cards for different purposes, such as travel rewards, cashback, and business use.

What happens if I stop paying my credit card bills?

If you stop paying your credit card bills, your credit card issuer will first charge you a late fee and interest. Once you are 30 days past due, the credit card company may report you to the credit bureaus, your score will decrease, and you will continue to accrue interest. If you continue not to pay after your card issuer makes multiple attempts to contact you, your account will go to collections.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Experian. "State of Credit 2021: Rise in Scores Despite Pandemic Challenges."

  2. Consumer Financial Protection Bureau. "How Do I Send My Credit Card Company a Billing Error Notice?"

  3. Diners Club International. "The Story Behind the Card."

  4. Equifax. "When Does a Late Credit Card Payment Show Up on Credit Reports?"

Related Articles