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The Risks and Rewards of Credit Cards

Today, credit cards are everywhere, from mailings proclaiming that you’re “pre-approved for this limited-time offer!” to cashiers promoting their store card at every purchase. Their convenience makes them a popular choice for many consumers. In fact, credit cards are the most preferred form of payment for Americans over debit cards and cash.

It’s true that credit cards can be useful and, in some cases, even make you a little extra money. But there are also negatives that are important to be aware of. Here are some of the risks and rewards you should consider to make sure you’re using credit cards responsibly.



It’s easy to go into debt

In 2017, the average American household carried nearly $16,000 in credit card debt, and it’s not as hard as you’d think to get there. Using a credit card feels like you’re not using your own money—and that’s true, to an extent. You’re literally borrowing money from a credit card company, and even when it’s time to pay the bill, you only have to pay the minimum amount. But of course, it’s not really free money; it all must be paid back eventually. And with exorbitant interest rates tacked onto those credit card bills, debt can grow fast.

Extra fees

When applying for a credit card, it’s important to read the application’s fine print, because credit cards come with extra fees attached for a variety of things. Many cards charge an annual fee—anywhere from $10 to $500—just for having the card. There are also fees for special circumstances, such as:

Balance transfer fees: charged for transferring your balance between two credit cards

Cash advance fees: charged for using your card to get cash

Expedited payment fees: charged for last-minute bill payments over the phone

Foreign transaction fees: charged for making a purchase in a foreign currency

Late fees: charged for failing to make the minimum payment in time


Rewards programs

Many credit cards literally reward you for using them. For example, many store credit cards offer a percentage discount on all items when you use them in that store. Other credit cards, many of them from banks, offer a variety of rewards ranging from airline points to a percentage of cash back on every purchase. As long as you avoid interest by paying these cards off in full every month, you can essentially get paid to use a credit card.

Building up your credit score

Do you foresee yourself ever needing a loan for a large purchase, like a car or a house? You can’t get a loan without a good credit score. To establish this, you need a proven history of both borrowing money and paying it back. Credit cards are an easy way to do this. Even if you don’t spend very much on your credit card, the mere act of using it a little bit each month and then paying it off in full will build up your credit score. Then, when you’re ready to buy that car, lenders will see how reliable you have been with your payments in the past and agree to loan you the money.


The risks of credit cards are real, but they’re manageable. Limit yourself to only spending what you can afford, and pay your credit card bill in full each month. Doing these things will help you avoid debt and sidestep many of the fees associated with your card. If you use credit cards wisely, they can be a huge benefit to you in the long run.

To learn more about credit, debt, and other important financial topics, check out the new Quick Financial Literacy Guide: Five Steps to Gain Control Over Your Financial Future from JIST Career Solutions.

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