Nowadays, credit cards have taken place in our lives as an indispensable part because of their easy-to-use and very convenient payback system. It offers discounts, different-different offers, and deals that are comparatively unmatched by any other financial product for the wise user. However, credit cards can also become debt traps if it is not used correctly, or if you spend more then you have to repay when the bill comes around. So, in this article, we read briefly about the pros & cons of credit cards.
Getting a credit card has its own pros & cons. As we know, credit cards are convenient for making purchases and even some offer rewards on your spends. A credit card can be a helpful tool for building a good positive credit history. If you are looking to have your first credit card then it is important for you to know what are the pros & cons of credit cards.
A credit card allows you to make purchases and pay for them later on. It is like a short-term loan. So, in this article, we discuss the benefits of credit cards and the disadvantages of credit cards and also discuss how to use credit cards in the right way. Read along
7 Benefits of Credit Cards
Credit cards are easy to use. When you use your credit card to make a purchase, the merchant, the credit card company, and the card network coordinate to authorize the payment process. All of this work is done electronically and practically. So, before getting the credit it is important for you to know what are the 7 benefits of credit cards.
- Easy access.
Importantly, the greatest benefit of a credit card is that it’s easy to access credit. As we know, credit cards work on a deferred payment basis, which means that you can use your credit card now and you can pay for your expenses later on. The money which you use is not cut from your account, thus it’s not dented from your bank balance every time you swipe.
- The facility of EMI
If you are planning on making a big purchase and you don’t want to sink your savings into it then you can choose to put it on a credit card as a way to defer your payment. Additionally, you can also choose to pay off your purchase in equated monthly installments, to ensure you are not paying a lump sum amount for it and denting your bank balance. As we know paying through EMI is much better than taking out a personal loan to pay for a purchase, such as for television or an expensive washing machine.
- Building a line of credit.
Credit cards offer you to build up a line of credit. Importantly, it allows banks to view an active credit history that is based on your credit card repayments and usage of credit cards. Banks and other financial institutions often look to the usage of credit cards as a way to gauge a potential loan of an applicant’s creditworthiness, it makes your card important for future loans or other rental applications.
- Incentives and offers.
Mostly, every credit card comes packed with incentives and offers to use your credit card. Normally, this comes from cashback to rewards point accumulation every time you swipe your credit card, which can be redeemed later as air miles or you can use it towards paying your outstanding credit card dues. Fortunately, Lenders also offer you discounts on purchases made by a credit card, such as purchases on flight tickets, holidays, or other big purchases, helping you to save.
- Expenses records.
Your credit card records each expense you made through your credit card, with a proper detailed list sent with your monthly credit card statement. It is used to track and determine your spending and purchases, which is useful when chalking out a budget or for tax purposes. And lenders also provide you instant alerts every time you swipe your card, details of the amount of credit that is still available as well as your current outstanding on your credit card.
- Flexible credits.
Flexible credit is also a benefit of credit cards because credit cards always come with an interest-free period, which is a period of time during which your outstanding credit card is not charged with interest. Normally, it ranges between 45 to 60 days. And you can claim free, and short-term credit if you pay off the entire balance due by your credit card date of payment. Thus, you can also get the benefit of credit advance without having to pay the charges associated with having an outstanding balance on your personal credit card.
- Protection payments.
Payment protection is another great benefit of credit cards. Credit cards offer protection in the form of insurance for card purchases that may be damaged, lost, or stolen. The statements of a credit card can be used to vouch for the veracity of an avail if you wish to file one. You can get all these 7 benefits of credit cards if you use a credit card. Now, as we know every coin has two sides so there are some cons of credit cards also there. So, let’s discuss the cons of credit cards.
Disbenefits of Credit Cards
There are some disadvantages of credit cards but if you use your credit card in the right way then you don’t face any cons of credit cards for sure. Still, before getting a credit card, knowing the disadvantages of credit cards is important for you. Read long.
The biggest disadvantage for a credit card user is the minimum due amount that is displayed at the top of a billing statement. A number of holders of a credit card are deceived into thinking that the minimum amount is a total due they are obliged to pay, when in fact it is the least amount that the company wants and expects you to pay to continue receiving credit card facilities.
2.The Hidden charges
Credit cards appear simple and straightforward at the outset but they have a number of hidden charges that could reck your expenses overall. Credit cards have a number of tax charges and fees such as late payment fees, renewal fees, joining fees, and processing fees. It also takes a penalty when you mistakenly miss your credit card and your repeated late payments can also result in the reduction of your credit limit. Which can put a negative impact on your credit score and future credit prospects.
Sometimes, we forget the amount we owe in our bank account and spend more and it is known as overuse of credit cards. With revolving your credit card, since your bank balance still stays the same, it might be tempting to put all your spending on your card that makes you unaware of how much you exactly owe. And as a result, you lead to overspending and owing more than you can pay back and it simply begins the cycle of debt and high-interest rates on your future payments.
4. High-interest rate.
High-interest rate is also a super con of credit cards. Somehow, if you do not clear your dues by your billing due date then the amount is carried forward and high interest is charged on it. Credit card interest rates are quite high, with the average rate being 3% per month which means 36% per annum.
5. Credit card fraud.
Though it is not very common, there are chances that you might become a victim of credit card fraud. As we know, With advances in technology, it is possible to clone a credit card and gain access to your confidential information through which any other individual or entity can make purchases on your credit card. So, regularly check your statements carefully for spends that look suspicious and inform the bank immediately if you suspect a credit card fraud. Usually, Banks waive off charges if the credit card fraud is proven, so you will not have to pay for expenses charged by the thief.
How To Use Your Credit Card in the Right way.
A credit card is not a child toy. If you use it properly then it would give you lots of benefits. So, here are a few tips to use a credit card in the right way.
- Read the fine print statement regularly so you’re aware of all the charges and conditions that govern your credit card.
- Don’t spend more than what you can’t payback.
- Try to Avoid putting daily spends on your credit card so that you’re aware of how much you’re spending.
- Periodically check your credit card limit and rein in spending whenever you’ve crossed 40% of your available credit card limit.
- Choose an EMI option for big purchases put on your credit card to avoid having to pay high interest on outstanding credit card amounts.
- Always keep at least 40% of your credit card limit for emergency purposes.
- Plan your purchases well and use your credit card only for planned purchases. Try to Avoid impulse buys on your credit card.
- Always try to pay your credit card bills on time each month to avoid the high-interest charges.
- Never miss a credit card payment, as this will result in higher charges and a huge penalty.
- Contact the bank if you’ve overspent on your credit card. They would help you devise a pay-back plan with a fixed rate of interest to avoid you falling deeper into debt.
Credit cards have lots of benefits. Having a credit card is a good idea. But before getting it do search well about credit cards. I hope you get to know all the knowledge you need about credit cards. Thanks for reading.
Do you know how credit cards work and how to use them? Then read along with this article.