Credit Cards Were the Most Popular Payment Method on Black Friday. That's a Good Thing and a Bad Thing

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KEY POINTS

  • Shopping with credit cards means earning rewards on your purchases.
  • It can also mean landing in costly debt.
  • If you can pay off your credit card balance before interest is charged, they can be a useful financial tool.


As a means of payment, credit cards really are a mixed bag.

Black Friday is commonly a popular time to shop. And this year was no different. Many consumers took advantage of Black Friday deals, both in stores and online. And with regard to the latter, credit cards were the most popular payment method for shopping online on Black Friday, according to a recent PYMNTS report. Debit cards were the next most popular choice, followed by PayPal.

But is the fact that so many consumers relied on credit cards a good thing? That's debatable.

The upsides of using credit cards

Shopping with credit cards could mean earning rewards or cash back on the items you're purchasing. And that's basically like getting free money. In fact, it's easy to argue that using a credit card during the holidays is a wise choice, because at a time when your spending is increasing, getting cash back can help offset your costs.

Plus, when you shop with a credit card, you get a degree of protection that your debit card may not give you. Let's say you purchase a gift item that's damaged in transit or ends up being very different from its online description. If the merchant refuses to refund you or let you exchange that item but you charged it on a credit card, you can dispute the charge and potentially get your money back.

The downsides of using credit cards

Getting rewarded financially for the purchases you were already planning to make is very much a good thing. The problem with credit cards, though, is that they tend to be more generous than necessary when it comes to spending limits. And that could lead consumers to overspend and wind up with debt as a result.

Now generally speaking, it's best to avoid debt across the board. But credit card debt can be particularly dangerous for a couple of reasons.

First, credit cards tend to charge a higher percentage of interest than most other borrowing options. You might, for example, pay a lot more interest on a $5,000 credit card balance than you will on a $5,000 personal loan balance.

Also, credit card companies commonly compound interest on a daily basis. This means that for each day you carry a balance forward, you accrue additional interest on the sum you owe. Because of this, a small credit card balance can easily evolve into a large one. In fact, it's not unheard of for consumers to use credit cards to buy things and then wind up spending more money on interest than their actual purchases themselves.

Be careful when shopping with credit cards

All told, shopping with a credit card, whether during the holiday season or a different time of the year, can work to your benefit -- as long as you're able to pay your balances off in full by their respective due dates. It's when you carry credit card debt forward that you run into trouble. But if you're confident you can avoid that, you might as well stick with using credit cards and reaping the rewards they have to offer.

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