The Pros and Cons of Credit Cards

Every time you shop, you decide whether to pay by card or cash. Paying cash makes it easier to stick to a budget, helps you stay out of debt, and keeps credit card costs at bay. On the other hand, credit cards come with a lot of perks that make them attractive to use for everyday spending.

While the decision ultimately comes down to personal preference, we’ve outlined the pros and cons of credit cards for everyday expenses.

Pros of Using Credit Cards

Rewards

By far, the best reason to use your credit card for everyday expenses is the ability to earn cashback and other rewards. There are credit cards that offer rewards for different categories, such as groceries or gas. You are bound to find one that matches your spending habits. Credit cards offer rewards in multiple forms, such as cashback, miles for flights, or free hotel stays. And, of course, there are some great welcome bonuses out there.

When you find the perfect credit card that matches your spending habits and offers rewards you’re likely to redeem, it’s a no-brainer to use it for everyday expenses to rack up the most rewards. Of course, you shouldn’t spend aimlessly just to get more rewards. But why not earn rewards for using your credit card for purchases you would make anyway?

Check out our list of the Best Credit Cards for Everyday Spending

Build Credit

Payment history makes up about 35% of your credit score. To contribute to the payment history component of your credit score, you need to have bills to pay. Charging everyday expenses to your credit card is a simple way to make sure you have something to pay off each month. The extra credit can also improve your credit utilization.

Don’t Know Your FICO? Here’s How to Check Your Credit Score for Free

When you pay your credit card bill on time each month, you contribute to your payment history and build your credit. We all know the benefits of having a high credit score — a better chance of getting approved for auto loans and mortgages. Plus, you’ll pay lower interest rates, which means you’ll pay less over the life of the loan.

Purchase Protection

Some credit cards offer purchase protection for a limited period after you buy something. This means that if the item is defective or stolen, you can report it to your credit card company and seek reimbursement. The exact terms vary from company to company, but overall it’s an excellent benefit.

When you purchase something with cash, your only method of seeking reimbursement is through the store where you bought the product. We all know refund policies differ greatly and returning something can often be a big headache.

Many credit cards also have some protection for rental cars, so you can save some money by declining the rental car company’s insurance plan. Speaking of insurance, some credit cards also offer travel protection such as travel accident insurance, travel cancellation insurance, and baggage insurance.

American Express is known for providing comprehensive purchase protection. With an eligible credit card, your purchase is protected against theft or accidental damage up to 90 days from the date of purchase. Upon a successful claim, you’ll be reimbursed the full amount of the charge to your credit card. Some American Express cards even cover you if you lose something (check your credit card agreement to find out whether yours does).

Security

When you carry a credit card, you have the purchasing power of whatever your credit limit is without the risk of carrying that same amount of cash. Most of us wouldn’t feel comfortable walking around with thousands of dollars in our pockets. When you carry your credit card, you are essentially maintaining your purchasing power while eliminating the risk of losing your money. And if you use a digital wallet, you don’t even need to carry the card at all, just your phone.

If your credit card is stolen, you can easily report it and have your card canceled. Almost every credit card has zero liability for unauthorized purchases, so you’re not responsible for any charges made after you’ve reported your card stolen. On the other hand, if your cash is stolen, there’s little you can do to get it back.

Budgeting

We all know how important budgeting is for staying on top of your finances and reaching your financial goals. Using credit cards for everyday expenses can make budgeting easier. You can simply log into your credit card account to track your transactions. Most credit cards sort purchases by category, so you can easily see where you’re spending the most and where you need to cut back.

You can also link your credit card to a budgeting app to track your spending on the go. Linking your credit card to a budgeting app also eliminates the need to enter your expenses manually and ultimately saves you time.

Cons of Using Credit Cards

Ease of Spending

Credit cards make spending money a little too easy. When you’re not handing over hard cash, you can become detached from your money. Swiping your credit card doesn’t create the same feeling that using cash does. Swiping your credit card seems like less of a big deal and can tempt you into spending money you don’t have. If you’ve recently been approved for a credit card with a $5,000 limit, it’s easy to think you suddenly have $5,000 to spend.

This ease of spending can lead you to spend more than you would have if you were using cash for everyday expenses. When you’re constantly swiping your credit card, you may lose track of your balance. What’s worse is that you may even get yourself into debt by spending so much that you’re not able to pay the bill in full each month. With interest rates above 20%, even for people with good credit, it’s more important than ever to pay off your balances.

Lower Credit Score

Amounts owed make up about 30% of your credit score. Your credit utilization ratio (the amount of credit used divided by the total amount of credit available) is an important factor in your credit score. You want to keep it as low as possible, but definitely less than 30%. However, using your credit card for everyday spending can cause your credit utilization ratio to go up, particularly if you don’t pay off the balance in full each month. A higher credit utilization ratio will lower your credit score.

If using credit cards for everyday expenses causes you to carry a high balance, reconsider this approach. Or, you can ask your credit card company for a limit increase to keep your credit utilization ratio low.

Fees and Interest

This disadvantage is mainly for people who don’t pay their credit card bill in full each month or are otherwise not as responsible with their credit. However, even if you use your card responsibly, some credit cards charge annual fees, late fees, foreign transaction fees, and balance transfer fees, to name a few. Make sure the rewards offset the fee.

If you miss a payment, you’ll be charged a late payment fee. These are usually around $25 to $35 but can be as high as $41. Many credit card companies will charge you this late fee if you miss your payment due date by mere hours. Miss a payment by more than 30 days, and it may be reported on your credit, impacting your score for the next 7 years.

If you don’t pay your balance in full each month, the remaining amount will begin to accrue interest. Credit card interest rates are typically in the double digits. So, the interest on your balance can add up quickly the longer you don’t pay it off.

Paying fees and high-interest rates are major downsides to using your credit card for everyday expenses. You’re better off using cash if you have a problem paying your balance in full each month.

Check Out The Best Interest-Free Credit Cards

Final Thoughts

The pros of using your credit card for everyday expenses outweigh the cons. Who doesn’t like free money, miles for flights, or hotel stays? Using your credit card more frequently can help you earn those attractive rewards more quickly.

Purchase protection is also another major perk to using credit cards for everyday expenses. You never know when an item you bought will break or get stolen. More often than not, stores aren’t able to offer the same protection your credit card can.

The cons of using your credit card for everyday expenses are valid. However, they apply more to people who are less responsible with credit. If you are careful with your spending, watch your balance, and pay your bill in full each month, you shouldn’t have a problem on those fronts. Ultimately, it comes down to personal preference.