About this video
Sal argues that credit cards are neither good nor bad: they bring convenience, rewards, a way to build credit, emergency access and purchase protection, but also risks. The biggest danger is carrying a balance, which means very high interest and fees and is often a sign of spending beyond your means.
You'll be able to
- list several benefits of using a credit card.
- explain the main risks of credit cards, especially carrying a balance.
- describe what responsible credit card use looks like.
Key words
- Balance
- The amount you still owe on your credit card.
- Debit card
- A card that takes money straight from your bank account, giving similar convenience without borrowing.
- Purchase protection
- Extra cover some cards give, like insurance, easier refunds or protection from some fraud.
- Spending beyond your means
- Buying more than you can actually afford with the money you have.
Transcript
- So let's talk a little bit about whether credit cards are good or a bad thing. And the simple answer is, it's neither good nor bad, it has benefits but it also has risks that you have to watch out for. The benefits, and you know, this is the primary reason why I have a credit card, it can be very convenient.
You don't have to carry a bunch of cash around. Now, you don't need necessarily a credit card for that. You could have a debit card that also has that same level of convenience, but it also allows you to, sometimes you get cash back, you get rewards, you get special privileges with your credit card, you get mileage, so that could be another benefit of it.
One reason that some people talk about is you can build your credit. If you have access to credit, use a little bit of it and regularly pay it off, that can be a good thing for your credit rating. And every now and then, if you do need to spend more for an emergency or whatever else, it might be really good to have access to that credit.
And just talking about benefits, I just talked about the points and things you can get. Certain credit cards will also give you purchase protection. Let's say you use it to book a flight or a vacation and something happens, you might get certain types of insurance there.
Or it might be easier to get a refund on something if you purchase it with the credit card, or they might protect you from some types of fraud. So those are all good reasons to have and or use credit cards. Now, what are the things that we should watch out for?
Well, my general opinion is don't keep balances running on credit cards. That is usually going to be the highest interest source of borrowing that you could have. The fact that you even need to do that is probably a signal that you're spending beyond your means.
So, you know, it's very easy when you have a card and you just swipe it or even tap now and you're able to buy this thing that you think you want. It doesn't even feel like real money. That's risky. You're spending money that you don't have. The interest is very high and there could be a lot of fees that we talk about.
Hidden fees maybe. And especially if you're not able to pay it off, the interest, the late payment fees can get pretty bad. And you know, I think a lot of people do get themselves in trouble with credit cards. So I, I don't think in my entire life I've ever...
I always pay off my credit cards at the end of the month. If I'm not able to do that, that's a sign that I'm overspending in some way. So be very, very, very, very conscientious of how you use your credit cards but if you use it responsibly and thoughtfully, it can definitely have benefits.
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