According to the Consumer Federation of America, 80 percent of households in the United States have a least one credit card. About 60 percent of those households have a balance on at least one credit card that is carried over each month. The availability of consumer credit can be an advantage for financially responsible consumers. Consumer credit, however, can also be dangerous.
Convenient
One advantage of consumer credit is the convenience it provides. With lightweight credit cards, it is not always necessary to carry around a large wallet or purse filled with cash. You can purchase items without carrying your checkbook everywhere. Credit cards are accepted in most retail and grocery stores.
Emergencies
Many people live paycheck to paycheck. If the car breaks down or a child becomes ill, these families could quickly find themselves in a financial crisis. One small emergency could ruin a family's finances. With consumer credit, you can have the purchasing power that can see you through these emergencies. Handled responsibly, credit cards can keep you from stress and worry about how your family's financial needs will be met.
Large Purchases
Without consumer credit, large purchases would not be possible for many people. The ability to pay cash for a car or other big-ticket items isn't available to everyone. Consumer credit allows a family to afford the necessities and use the purchased item while paying for it. If the family car breaks down, consumer credit allows you to replace it immediately instead of saving for years and doing without the transportation you need.
Builds Credit
For young people, using a small amount of consumer credit helps to establish a good credit rating. A good credit rating becomes important if you need to borrow money for a financial emergency or large purchase. In some instances, a poor credit rating can also cost you a shot at a job or apartment. A good credit rating helps you to stay out of financial trouble, and you can build your credit by making small credit card purchases and paying the bill in full every month.
Temptation
A major disadvantage of consumer credit is the false sense of empowerment it provides. If you have a line of credit, you are more likely to be tempted to make purchases that you cannot afford. You may be tempted to overspend at the grocery store if you aren't sticking to a tight budget.
More Expensive
When you pay cash for an item, the item's cost is obvious. When you purchase the item with a credit card, however, you may continue to pay for the interest on that purchase for months to come. Credit card interest is compounded--often daily. Therefore, a purchase that is not paid in full becomes more expensive every day.
Unrealistic Lifestyle
Consumer credit can get you used to living a lifestyle that is beyond your means. If you do not handle consumer credit responsibly, less of your income will be available in future years. Living above your means now will result in a lower standard of living later. The stress of paying off debt and the loss of financial freedom can cause even more of a strain on your financial life.
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