Pros and cons of using credit cards for everyday purchases

You can use credit cards for almost every purchase. But should you?

It’s not always an easy choice, and habits play a role. Your preference for using a debit card over a credit card may have more to do with your personal spending patterns than weighing the pros and cons of either choice.

The disadvantages of buying with a credit card only outweigh the benefits if you overuse your line of credit or don’t practice responsible payment habits. The pros and cons really come down to how disciplined you are with your daily expenses and whether you pay your credit card balance each month to avoid interest or fees.

Pros of using a credit card for everyday purchases

• Earn as many rewards as possible by paying with your card for everything from morning coffee to concert tickets.
• Continually improve your credit score by spending money on small day-to-day expenses and paying them off in full.
• Consumer protections such as purchase protection and extended warranties come in handy when paying with a credit card.

Maximum bonus points

This may be the most common reason for using your credit card for everything from morning lattes to late-night shopping. The more purchases you pay with a card, the faster you accumulate bonus points.

“Credit card companies have expanded rewards programs to provide cardholders with additional swipe incentives, including travel points, cash back and more. It’s a great way to get something in return for all the purchases you make,” said Andrea Woroh, consumer products and money savings expert, in a previous interview.

Be sure to review your card’s policy and select any bonus reward options when appropriate.

“For example, my Bank of America card provides cash back on all purchases, and if I wait to redeem them until I collect more than $300 in rewards, they will refund me an additional 25 percent,” Vorokh said.

Build your credit score

To build an excellent credit score, you need to demonstrate that you can use a credit card responsibly and build a credit history. The most important factor in the FICO credit scoring model is your payment history, in other words, your pattern of using credit and repaying it on time.

There’s no need to buy large items or go into credit card debt – charging for inexpensive items you have to buy works really well either way. Your credit card balance doesn’t even have to be high in order for you to get a loan. By charging as little as $100 a month and paying it back immediately with what’s in your checking account, you can improve your credit score.

Best Purchase Tracking

When you spend cash, you may be left with a bunch of receipts that need to be sorted for accounting and tax purposes. When it comes to credit card spending, it’s all on your monthly reports. (But you may still need your receipts for more details.)

For example, if you run a business or rent a property, simplify your record keeping by using a separate card for each purpose. Putting all your expenses through your credit card account can help you keep track of your budget. It may even make it easier for couples to share costs.

“For couples who don’t want to pool their bank accounts, using a credit card for shared expenses is a great alternative. So you can still have your own money in separate personal spending accounts, but keep up with the purchases you share, like groceries and cable,” Vorokh said.

Many credit cards help track spending in certain categories using software provided by the issuers themselves. Or you can upload information from your financial accounts to a budget app like Mint.

Consumer rights Protection

You may not need return protection for that morning donut, let alone the extended warranty available from your credit card. But you should consider using a credit card, which offers the added benefit of purchase protection when things go wrong.

Think about your chances of getting something back before you pay cash. If the answer is closer to “maybe” or “probably”, using a credit card will make it easier for you to get a refund later.

“Today’s retailers can often track purchases made with a card even if you don’t have a receipt, making it much easier to return,” Vorokh said. “If you pay cash and make a return without a receipt, you could be stuck with store credit at the lowest current selling price for that item.”

Bonus card benefits

One of the biggest benefits of credit cards are the bonus benefits that many card issuers offer. For example, American Express’s Platinum Card® offers about $1,400 in statements each year, while the Chase Sapphire Reserve card includes a free year of Lyft membership, an annual DashPass, Global Entry, or TSA PreCheck credit every four years, and $300. annual travel credit.

You cannot receive these benefits if you simply use a debit card or cash for such purchases. That’s a pretty tempting plus.

Cons of using a credit card for everyday purchases

• Using plastic can lead to money overruns and you could end up in debt sooner than you think.
• While credit cards make transactions easier and faster, they are also more prone to fraud.
• If you have a balance on your credit card, interest and fees can quickly catch up to you if you don’t pay them off as soon as possible.

The danger of overspending

It’s easy to make an impulse purchase with a credit card. It’s practically painless (until the bill shows up, of course).

However, if you don’t check your credit card bill every day and don’t pay off the balance immediately, you may suddenly find that your credit card bill is more than you can pay off in one payment. This can create a cycle of credit card debt, which is one of the most dangerous disadvantages of credit cards.

Higher risk of fraud

There are several credit card fraud prevention tools available, such as your card’s CVV or CVC, but they are not reliable. Every time you use your card, your information may be compromised. Some possible scenarios are at a gas station where a skimmer is installed, or when someone is looking over your shoulder during checkout.

While your card details can be compromised even if you use them at a large retail store that you know and trust, think twice before paying with plastic if you have any doubts.

Interest and fees

If you overspend and carry over your credit card balance from one month to another, you will be charged interest and the amount will be added to your credit card account. Each payment cycle, when you do not pay off your entire balance, will increase the interest.

In addition, some credit cards have an annual fee that is debited from your account each year. The annual fee may or may not be worth it, depending on the rewards and credits you get with the card and whether you use them or not. The pros and cons of credit cards that pay annually come down to your personal preferences and spending habits.

Short-term impact on credit

While one of the benefits of credit cards is the ability to build a credit history and improve scores, this also has a short-term impact on credit.

When you apply for a credit card, the card issuer will most likely perform a rigorous credit check, which is essentially a deep dive into your credit reports. This will temporarily affect your credit score, but only in the short term. After two years, a hard credit request will disappear from your report. However, you should be careful about how often you apply for new cards. Too many loan applications are considered a wake-up call for issuers and lenders.

bottom line

Credit cards are useful tools for getting credit, getting refunds for other purchases, and protecting consumer rights. But their cons can outweigh the pros if you’re not careful. Avoid the vicious cycle of credit card debt by spending money within your budget and paying your monthly credit card statement on time.