December 21, 2022

Advantages and Disadvantages of Credit Cards

Credit cards can be great financial tools when used responsibly—they're convenient and easy to use, they can help you manage your finances, offer security and rewards, and help you build your good credit score.

However, they also come with some risks. Late payments, high-interest rates, and fees can all add up quickly, leaving you with debt that may be difficult to pay off.

That’s why before applying for one, it’s important to consider whether the advantages outweigh the potential risks. This way you’re able to make the best decision.

But before we dive into the advantages and disadvantages of credit cards, let's start with the basics.

What Are the Different Types of Credit Cards?

There are several types of credit cards, each with unique features and benefits. Most people have at least one major credit card for general purchases—but there are also special cards for specific uses.

The following are some of the more common types of credit cards:

1. General Credit Cards

General credit cards—also known as traditional credit cards—are the most common type. They are issued by a bank or credit card company and can be used in most establishments and online stores.

General credit cards can be either secured or unsecured. Secured cards require collateral—typically a security deposit—which the issuer uses to set your credit limit. It also acts as a guarantee of repayment if you don't pay your balance in full. On the other hand, unsecured cards do not require any collateral.

2. Retail Credit Cards

These types of credit cards are issued by a retailer. They are also sometimes referred to as co-branded credit cards, meaning they are issued in partnership with another company (in this case, a credit card issuer or network).

These cards are generally intended for use at the issuing store and offer perks such as discounts on purchases or access to exclusive offers. This makes shopping at their affiliated stores more attractive than shopping elsewhere.

3. Rewards Credit Cards

Rewards credit cards offer perks like cash back, points, or travel miles for every dollar you spend on your card. They generally have higher interest rates than non-rewards cards, but may be worth it if you plan on using them regularly and want to rack up rewards quickly!

4. 0% Introductory Purchase APR Cards

A 0% introductory purchase APR card is a great option if you're planning to make a big purchase soon.

These cards offer an introductory period (typically 12 months or more) where the interest rate is 0%—making them ideal for paying off large purchases over time without having to pay interest.

5. Balance Transfer Credit Cards

Balance transfer credit cards allow you to transfer balances from other high-interest accounts at 0% interest for a certain period (typically six to 21 months). This makes them perfect for people who want to consolidate their debt in one low-interest account.

5 Advantages of Credit Cards

A credit card can help you manage your finances more conveniently. It can offer you a lot of benefits if you know how to use it wisely.

Here are five major pros of using credit cards:

1. Convenient Payment Option

A credit card is one of the easiest ways to make a payment. You can use your card for just about anything, including rent payments, utility bills, and purchases. This makes it easy for you to make payments without having to carry cash or write checks all the time.

2. Helps You Build Credit

If you’re starting from scratch, your first card can be a great way to build a good credit score and get practice with managing credit.

As long as you use your card responsibly, and pay off your bill in full every month—you'll be building up a positive credit history. This can help you land more favorable rates on future loans or mortgages if needed down the road.

3. A Line of Credit for Emergencies

If you ever find yourself in a situation where you need money quickly and don't have it on hand, a credit card can be a lifesaver.

You can use it for car repairs, medical bills, or anything else that comes up unexpectedly. Just make sure you pay off the balance in full before the due date.

4. Purchase Protection

Most cards will reimburse you if an item you purchased with it is damaged or stolen within a set period after purchase (typically within 90 days). This could save you money on expensive repairs or replacements.

But make sure to read the fine print on your card's policy to find out what types of purchases are covered and how long you have to file a claim after an incident occurs.

5. Rewards Programs

Rewards programs can help offset the costs of using your card by giving you points or cash back on your purchases.

The rewards are typically based on your spending habits over time—the more money you spend on gas, groceries, and dining out using your card, the more points or cash back you'll earn.

5 Disadvantages of Credit Cards

Although credit cards can offer numerous advantages, there are also potential drawbacks to consider before applying for one.

Here are five main cons of a credit card:

1. High-Interest Rates

If you carry a balance on your card, the interest rate can be as high as 30% or more. That means if you don't pay off your balance in full each month, your interest rate will quickly add up, and you might fall into a deep debt hole.

2. Potential for Overspending

It's easy to get caught up in the moment when using a credit card instead of cash or a debit card.

Because there's no physical sense of how much money is going out of your pocket each time you swipe your card or buy something online, it's easy to lose track! Moreover, perks such as rewards programs and cash-back offers make it tempting to spend more than you should.

3. High Annual Fees

Many credit cards charge an annual fee ranging anywhere from $95-$500 per year, depending on the type of card (platinum or gold) and its benefits (travel rewards or cash-back incentives).

If you don't plan on using your card often, it may not be worth paying so much money just for having it in your wallet!

4. Hidden Costs

Credit cards often come with several hidden costs that can add up quickly and cause you to go into debt even faster.

These include late fees, annual fees, cash advance fees, or balance transfer fees (if applicable). There are also penalty fees for exceeding your credit limit (over-limit fees) and more.

Understanding these fees before applying for a credit card is essential so you don't get caught off guard.

5. Credit Card Debt

Another major disadvantage of credit cards is that it's easy to get into debt with them. When you spend money on a credit card, you are spending money you do not have.

You will need to pay back the full amount at some point—which means you'll have to cover the cost of interest charges on what you owe plus the initial purchase price.

To avoid credit card debt, it's best to limit your use of credit cards and keep your balance paid off at the end of the month.

Do You Need Money Before Payday? Earnin Can Help

You might think using credit cards is your best option for getting instant cash when you're in a bind. But we're here to tell you that there's an easier way that doesn't involve putting yourself at risk of debt.

The Earnin app gives you access to your hard-earned wages—free of charge—and before payday!

With our Earned Wage Access tool Cash Out, you can get up to $100 per day and withdraw up to $750 per pay period. This way, you can get ahead of your bills while avoiding interest charges or late fees associated with credit card debt. Download the Earnin app today and start enjoying the money you worked hard for. To learn more about how Earnin can help you with your finances, visit earnin.com.

EarnIn is a financial technology company, not a bank. Bank products are issued by Evolve Bank & Trust, Member FDIC. The EarnIn Card is issued pursuant to a license from Visa USA Inc.

1Subject to your available earnings, Daily Max and Pay Period Max. EarnIn does not charge interest on Cash Outs.

2Fees apply to use Lightning Speed. Lightning Speed may not be available to all Community Members. Cash Outs may take up to thirty minutes, actual transfer speeds will depend on your bank connection. Restrictions and/or third party fees may apply, see Earnin.com/TOS for details.

1Restrictions on use of Services and/or third party fees may apply, see earnin.com/privacyandterms for details.

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1Fees may apply to use Lightning Speed. Lightning Speed may not be available to all Community Members. Cash Outs may take up to thirty minutes, actual transfer speeds will depend on your bank connection. Restrictions and/or third party fees may apply, see  Earnin.com/TOS for details.

2Restrictions and/or third party fees may apply, see Earnin.com/TOS for details.

3Balance Shield cash out is subject to your available earnings and your daily pay period max. Other restrictions and/or third party fees may apply, see Earnin.com/TOS for details.

4Tip Yourself Account funds are held with Evolve Bank & Trust, Member FDIC and are insured by the FDIC up to the standard maximum deposit insurance amount per depositor, per FDIC-insured bank, and per ownership category. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service. Other restrictions and/or third party fees may apply. For more information/details visit earnin.com/tos.

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6Your Max on Earnin Express is up to 80% of your payroll or $1000, whichever is less. The 80% is dependent on you routing your full paycheck to Earnin Express. For more information on eligibility and requirements of Earnin Express, visit Earnin.com/TOS.

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1Disclaimer: Restrictions and/or third party fees may apply, see earnin.com/privacyandterms for more details. Lightning Speed may not be available to all Community Members. Cash Outs may take up to thirty minutes, actual transfer speeds will depend on your bank connection.

2Disclaimer: Lightning Speed may not be available to all Community Members. Cash Outs may take up to thirty minutes, actual transfer speeds will depend on your bank connection. Restrictions and/or third party fees may apply, see earnin.com/privacyandterms for details

3Disclaimer: Community Member must have had at least 1 successful debit with EarnIn. Limit to 1 Max Boost per pay period. A boost will not adjust a Community member's daily max. Restrictions may apply, see earnin.com/privacyandterms for more details

*Disclaimer: Balance Shield Cash Out is subject to your available earnings and daily pay period max. Other restrictions and/or third party fees may apply. For more information visit earnin.com/privacyandterms

1Restrictions may apply, see earnin.com/privacyandterms for more details. Tip Yourself Account funds are held with Evolve Bank & Trust, member FDIC and FDIC insured up to $250,000. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service. Your Tip Yourself Account and any Tip Jars are not Savings Accounts. For more information/details visit earnin.com/privacyandterms

2Disclaimer: NO PURCHASE NECESSARY TO ENTER OR WIN. Must be 18 years of age or older and a legal resident of the U.S. or DC. Games begin each Sunday starting 12/6/20 at 9:01 p.m. ET and end the following Monday at 9:00 p.m. ET with the last Game ending 12/19/21. To download the App, view the Official Rules, odds disclosures, prize details, and alternate means of entry, visit https://www.Earnin.com/wewin/game-rules/. Void where prohibited. $10,000,000 grand prize payable over 29 years. Sponsor: Activehours, Inc. (d/b/a Earnin), 200 Portage Ave, Palo Alto, CA 94306.

3Disclaimer: Restrictions Apply. See Earnin.com/wewin/pool-rules/ for more information

1EarnIn does not charge a hidden or mandatory fee for use of its services. Restrictions and/or third party fees may apply. For more info: visit earnin.com/TOS.

*Survey conducted in February 2020 with 889 participants.

* Earnin does not charge hidden fees for use of its services. Restrictions and/or third-party fees may apply. For more info, visit earnin.com/TOS.

1EarnIn is a financial technology company, not a bank. The Deposit Account, Secured Account, and EarnIn Card are issued by Evolve Bank & Trust, Member FDIC. The EarnIn Card is issued pursuant to a license from Visa USA Inc.

2Subject to your available earnings, Daily Max and Pay Period Max. Restrictions and/or third party fees may apply, see EarnIn.com/TOS for details.

3Internal analysis conducted by EarnIn in January 2021, represents total users who Cashed Out at least once from January 1 to December 31, 2020

4This research was conducted online by FTI Consulting’s Digital & Insights team, on behalf of Brigit, MoneyLion & EarnIn. FTI Consulting researched n=4,735 of Brigit, MoneyLion and EarnIn’s Direct to Consumer (D2C) Early Wage Access service consumers between the dates of April 21st, 2021 – May 18th, 2021, and results were weighted in equal proportions to ensure equal representation among the consumers of each participating company. Due to the standard convention of rounding, some totals may not add up to 100%

5Internal survey conducted in February 2020 with 889 participants.

6EarnIn does not charge hidden or mandatory fees for use of its services. Restrictions and/or third party fees may apply. For more info visit earnin.com/TOS

7$4.68 ATM fee = $3.02 ATM + $1.66 bank fee https://www.bankrate.com/banking/checking/checking-account-survey/

8Internal data June 2022- Dec. 2022.

* EarnIn does not charge hidden fees for use of its services. Restrictions and/or third-party fees may apply. For more info, visit earnin.com/TOS.

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