The question of whether or not to use credit cards is a frequently discussed topic in personal finance. While some experts extol the benefits of credit cards, others warn against the dangers of credit card debt. The truth is that there is no one-size-fits-all approach to credit card use. In this article, I will explore the costs and benefits of using credit cards so that you can make an informed decision that is best for your individual circumstances.

Credit card companies offer rewards to customers who use their cards, such as cash back, frequent flyer miles, or other perks. These rewards are possible because credit card companies earn revenue from two sources: interchange fees charged to merchants for accepting credit card payments, and interest charged to customers who carry a balance on their cards. For example, when a customer uses a Chase Visa card to purchase a TV at BestBuy, both Visa and Chase take a percentage of the transaction, and Chase can then offer a portion of that cut as a reward to the customer. The credit card company hopes to make money by charging the customer interest or fees on any balance that is not paid off in full each month. Some credit cards offer rewards of up to 2% cash back on purchases.

Let’s say you spend $5,000 per month on expenses that can be paid with a credit card without a fee. That equates to $60,000 per year in credit card spending, which would result in $1,200 of rewards. Additionally, most credit cards offer a grace period for interest expense, meaning that you are not charged interest until the balance has been on your card past a billing cycle. If you manage your cash, this could earn (save) you another $200 to $300 per year.

While the benefits of using a credit card can be easily calculated, the costs are more difficult to assess, as psychology plays a big role. Some people find debt to be a scary prospect, and credit cards can be a gateway to overspending and accumulating debt. If you carry a balance of just $5,000 throughout the year, the benefits discussed above are negated. If you carry a higher balance, the cost of using a credit card can be significant.

The key to knowing whether or not to use a credit card is to understand your own tendencies and attitudes toward debt. Can you view a credit card as simply a tool for making purchases, rather than a source of debt? Will having access to excess credit encourage you to spend more than you should? For some, it may be helpful to think of a credit card as a debit card that can only be used when funds are available. If you are able to shift your mindset in this way, you can enjoy the benefits of credit card rewards while avoiding the pitfalls of debt.