- Credit cards allow a consumer to make purchases regardless of the amount of cash he has in his pockets or funds in his checking account. This form of payment is widely accepted in retail locations, restaurants and grocery stores. Hotels often require guests making a reservation to provide a credit card number to keep on file. Unlike cash, consumers can use a credit card to make purchases on the Internet. And, while traveling internationally, a consumer can use a credit card to make purchases at stores that accept this form of payment in lieu of converting currency.
- Transactions using a credit card are more abstract in nature than using cash to make purchases. When an individual uses a check, debit card or currency to pay for a purchase, she knows she has fewer funds to spend in her bank account or she can see that she has a smaller amount of currency in her wallet. Using a credit card, however, changes this mentality in some consumers. When an individual uses a credit card, she still has the same amount of funds in her bank account or wallet. Financial adviser Dave Ramsey states that a consumer may experience a disassociation from the consequences of using a credit card because she is not balancing her checkbook after a purchase or handling cash. Ramsey reports that a study at a fast food restaurant found that customers spent 47 percent more money than usual when they purchased their meals with a credit card.
- It is hard for some consumers to pass up a free offer, and promises of free rewards for doing something they already do -- spend money -- can be attractive. Many consumers know that responsible credit card use can reap a good credit score, which can open the doors to financing options for large purchases, employment opportunities and acceptance into rental properties. Additionally, credit cards offer a sense of protection if lost or stolen because, unlike cash, a credit card company will send consumers a new credit card and not charge for unauthorized purchases.
Benefits that credit card companies offer include cash-back rewards, loyalty points, airline miles and cardholder-only discounts. The promise of rewards, however, can come at a cost. Sometimes the fees and interest charged on a credit card over time can make a consumer pay more money for a reward, such as airline miles, than it is worth. Additionally, some rewards have an expiration date or are difficult to redeem. - Credit cards can feel like a lifeline when a consumer experiences a financial hardship or needs to make a large purchase, like necessary household repairs. When an individual experiences a financial need for money he does not have, the knowledge of the consequences credit card-use can bring may be the last thing on his mind. Credit cards can be a good short-term fix, but when used to pay for purchases in lieu of earned income or assistance programs, the accumulated debt could rise to a level that can feel uncontrollable. In an article for "USA Today," Kathy Chu states that the influence of credit cards and their accompanying debt can cause homeowners to neglect their mortgage payments because the monthly credit card bills are too expensive.
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