Guiding You Toward A Brighter Financial Future

The good and bad of credit cards

On Behalf of | Oct 24, 2019 | Credit Card Debt

Having a new credit card can provide perks and better credit. But this can also lead to problems such as credit card debt and a bad credit score. The best reasons for opening a new credit card include new member bonuses such as bonus points, miles, and cash back. Different rewards cards also give a variety of rewards for specific spending behavior that can reflect a Hamilton cardholder’s spending habits. Cards may also provide different extras such as extended warranties on purchases, travel or car rental insurance or access to airline lounges. It is important to learn how to use these benefits.

A new credit card may be an excellent method to build a positive payment history by using the card and paying the full balance each month. This also improves the credit utilization ratio that plays a role in setting a credit score.

Balance transfer cards allow the movement of an existing card balance to the new card. The new balance transfer should be set at a low rate like zero percent on the transferred balance, at least for a limited time. This can substantially lower the interest on existing credit card debt. But this may prove to be a bad idea if the cardholder is not reducing their debt and uses this card only to move debt around. Some cards also have a low introductory APR on purchases for a limited time after the card is opened. This allows a big purchase with no interest. But it is important to pay the card back before the interest rate goes up.

There are also very bad reasons to open a new card. First, maxing out other credit cards is among the worst reasons. Using the new card to pay off existing credit card debt can be financial quicksand. Also, maximizing credit card debt harms the credit utilization ratio, damages credit scores and is accompanied with high interest.

Using a card to pay for items beyond your budget is also a terrible reason. Charging essentials on a credit card makes this financial situation even worse. This can lead to more interest that makes every purchase even more costly. An attorney can help someone struggling with consumer debt. They can help protect assets and create a reasonable plan.