Everything has benefits and drawbacks, just like a coin has two sides. Credit cards are no exception. When considering whether to purchase a credit card, keep in mind that, with proper use, a credit card can never be detrimental to your financial situation. Rather, it will assist you in improving your financial well-being.
However, there are a few reasons why you would be worried about making the decision of getting a credit card for yourself. Listed below are some of the credit card advantages and disadvantages of credit cards. We have also explained how you can overcome the disadvantages of credit cards and use them effectively.
Credit Card Advantages
Credit cards have surely become a must-have financial tool. Listed below are a few reasons for the hype that has been created around them:
1. Easy access to credit
The ability to obtain credit easily is a credit card’s greatest benefit. You can use your credit card now and pay for your purchases later thanks to the deferred payment feature of credit cards. Every time you swipe, the money is not deducted from your account, keeping your bank balance intact.
2. Building a line of credit
You have the opportunity to establish a credit line with credit cards. This is crucial because it gives banks access to your current credit history based on how you use and repay your cards. Your credit card is crucial for any future loan or rental application because banks and other financial institutions frequently use credit card usage to determine a potential loan applicant’s creditworthiness.
3. EMI facility
You can choose to charge a large purchase you intend to make on your credit card in order to postpone payment if you don’t want to use all of your savings on it. Furthermore, you have the option to settle your purchase in equivalent monthly installments, which will prevent you from paying the entire amount at once and negatively impacting your bank account. When making a large purchase, like an expensive refrigerator or television, paying with EMIs is less expensive than getting a personal loan.
4. Incentives and offers
The majority of credit cards are loaded with benefits and inducements to use the card. These can include cash back or the accumulation of rewards points with each card swipe. These points can then be redeemed for air miles or applied to the balance of your outstanding credit card debt. In order to help you save money, lenders also provide discounts on credit card purchases, such as those made for holidays, large purchases, or airline tickets.
5. Flexible credit
An interest-free period, or a time frame during which interest is not applied to your outstanding credit, is a feature of credit cards. You can get free short-term credit, which lasts 45–60 days, provided you pay off the whole amount owed by the due date on your credit card bill. As a result, you can take advantage of a credit advance without having to pay the fees related to having a balance on your credit card.
6. Record of expenses
Every purchase made with a credit card is tracked, and a comprehensive list is sent along with your monthly credit card statement. This can help you keep track of your purchases and expenditures, which is helpful when creating a budget or filing taxes. Every time you swipe your card, lenders offer instant alerts that indicate how much credit is still available as well as how much is currently outstanding.
7. Purchase protection
In the event that a credit card purchase is misplaced, destroyed, or stolen, credit cards provide extra security in the form of insurance. If you choose to submit a claim, the credit card statement can serve as confirmation of its accuracy.
Disadvantages of Credit Card
1. Minimum due trap
The minimum due amount that appears at the top of a credit card statement is its biggest drawback. Many credit card holders are tricked into believing that the minimum payment is all that they must pay, when in reality, it is the very minimum that the business requires of them in order for them to keep their credit facilities available.
This results in customers assuming their bill is low and spending even more, accruing interest on their outstanding, which could build up to a large and unmanageable sum over time.
2. Hidden costs
Credit cards have a lot of hidden fees that can add up over time, despite their initial seeming simplicity and ease of use. Taxes and fees associated with credit cards include late payment, membership, renewal, and processing fees. You risk paying a fee for missing a credit card payment, and if you miss enough, your credit limit may be lowered. Both of these actions would be detrimental to your credit score and future credit prospects.
3. Easy to overuse
Since your bank balance remains constant when using revolving credit, it could be alluring to charge everything you buy to the card, hiding your outstanding balance from you. This might cause you to overspend and accrue debt that you are unable to repay, starting a vicious cycle of debt and high interest rates on your subsequent payments.
4. High interest rate
Interest is applied to the amount carried forward if you fail to pay your bills by the billing due date. When purchases are made after the interest-free period, this interest is accumulated over time. The average credit card interest rate is 3% per month, or 36% annually, which is a pretty high rate.
5. Credit card fraud
There is a possibility that you could become a victim of credit card fraud, even though it is uncommon. Thanks to technological advancements, it is now possible to copy a credit card and obtain private data, which allows someone else to use your card to make purchases. If you notice any purchases that don’t seem right, carefully review your statements. If you suspect card fraud, contact the bank right away. If the fraud is proven, banks typically waive fees, so you won’t be responsible for any purchases made by the thief.
How To Use Your Credit Card Right
To avoid being debt-laden due to unfettered spending on your credit card, keep the below tips in mind:
- Read the fine print so you’re aware of all the charges and conditions that govern your card.
- Don’t spend more than you can pay back.
- Avoid putting daily purchases on your card so that you’re aware of how much you’re spending.
- Periodically check your credit limit and rein in spending when you’ve crossed 40% of your available credit limit.
- Choose an EMI option for large purchases put on your card to avoid having to pay interest on outstanding card amounts.
- Always keep at least 40% of your credit limit for emergencies.
- Plan your purchases and use your card only for planned purchases. Avoid impulse buys on your credit card.
- Always try to pay your credit card bills in full each month to avoid the interest charges.
- Never miss a card payment, as this will result in higher charges and a hefty penalty.
- Approach the bank if you’ve overspent on your card. They could help you devise a pay-back plan with a fixed rate of interest to avoid you falling deeper into debt.
Should You Apply for A Credit Card?: The Final Call
Purchasing a credit card would end up being the best decision, provided it is used wisely. Easy access to money and convenience are two of the most popular and beneficial credit card features. They also assist you in keeping up a positive credit history, which will eventually benefit you when you apply for loans in the future. Nonetheless, you have to start using your credit card wisely right away. Your credit score will suffer greatly if you don’t do this.
In conclusion, it is evident that you should purchase a credit card for yourself despite all of the benefits and drawbacks associated with credit cards. As you do this, incorporate into your financial routine routines paying your credit card bills on time and managing your credit card expenses responsibly. These actions will eventually enable you to take advantage of all the benefits that a credit card has to offer.
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