Advantages and disadvantages of credit cards
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Credit cards come with many benefits which can help to make your life easy and comfortable at the same time. However, credit cards can be become a double edged sword as well.
Better alternative to cash:
With a credit card, you don’t have to carry a lot of cash in your wallet. Carrying a lot of cash in the wallet is risky. Your wallet may be lost or stolen. Once you lose your wallet then there is hardly any way to get it back. With credit cards, you can block the credit card instantly so that there is no misuse of the credit card. Also, you will be provided a temporary credit card till the issue is resolved.
For emergencies:
Emergencies do not come knocking and many a times we do not have adequate cash to overcome the emergencies. This is when credit cards act as a saviour and help us with urgent cash requirements such as accidents or other personal reason. Other than using the credit cards at various merchants, you can also withdraw cash against your credit card.
Insurance:
Different credit card offer different types of insurance. Some credit card offer protection on the items brought through credit card. Some of the other insurance provided by credit cards include personal accident insurance, insurance credit and trip cancelling insurance etc.
Reward Points:
Credit cards offer reward points and cash backs on transactions which can be redeemed on items, gifts, vouchers etc. It also provides customised offers based on your transaction history. This means that you are rewarded for making purchases of your choice.
Increase your Credit Score:
Credit score is an important determinant when it comes to taking loans. It becomes difficult to take a loan without credit history. And one way to build a credit record is by taking a credit card. And if you are regular at paying your dues, you can also increase your credit score.
Option to shift to EMIs:
Credit cards also let you convert big purchases into small EMIs which make it easy on the pocket. Also, the interest charged on EMIs is way less than the interest payable on the credit card if you are unable to clear your dues.
Accepted all over the world:
A Visa or Mastercard credit card is accepted all over the world. Hence, you don’t have to carry a lot of foreign currencies when travelling overseas.
Add-on Credit Card:
The family members of the credit card holders can also share the benefits of the credit card with the help of add-on cards. The family members can use the credit limit of the primary cardholder.
You can also upgrade your credit card for added benefits. Here are some of the benefits of upgrading your credit card:
Higher Credit Limit:
When you upgrade your credit card, you become eligible for a higher credit limit. A higher credit limit can enhance your credit score.
Faster Loan Approval:
If you make timely payments and don’t carry dues over to the next month, you can get faster loan approvals.
Just like everything else in the world, credit cards also have few disadvantages. These are:
Falling into temptation:
Credit cards let you use money that you don’t own. Hence, it is very easy to fall prey to temptations. Many people have been victim of the credit card debt and carry their balances month over month.
High Interest charges:
If you don’t clear the dues within the specified due date, you have to pay interest along with the amount of the balance that you have used. If you continue to pay the credit card bill after the last day on a regular basis then you would end up paying a higher price for all the goods that you have purchased. Also, the interest rate keeps on mounting with each single day and hence it is important to pay the bill way ahead of time and not wait for the last moment.
High fees:
Many credit cards charge an annual maintenance fee. Although the charges may not be high but it may become an additional burden with the pending credit card bill.
Hidden costs: Other than annual fees, credit cards have a host of hidden costs such as balance transfer fees, cash advance fees and over-limit fees. You may not be aware of the cost that these components carry and you would have paid more on interest and fees.
Promotional deals:
Credit card companies come up with different promotional deals to attract new customers. They offer deals such as low interest rate, zero annual fees and offers on different merchants. However, these deals are only valid for a limited span of time. Customers are often fooled by these marketing campaigns and forget to ask the nitties gritties of the card to the executive. Hence, it is important to read the details and fine print before taking a credit card.
Lower credit score:
Use of credit card can impact your credit score in the negative way as well. If you miss your payments and let your credit card debt accumulate over a period of time, it can have negative influence on your credit score. This can make it harder for you to apply for loan.
Terms and conditions:
Although credit cards give a number of deals and offers but it is attached to a number of terms and conditions. For example, there are conditions that restrict the number of times you can access a particular benefit. Many deals also come with an end date and the offer lapses if you are not able to use it within that particular time period. Hence it is important to check the terms and conditions before applying for a credit card that is offering tempting deals.
Mandatory scrutiny:
With the advances in technology, credit cards have become a target for frauds. Hence, it is important to undertake a mandatory monthly scrutiny of the bill to check for any fraudulent activities. Report it to your bank if you find anything suspicious.
Conclusion: Credit cards come with a number of advantages and disadvantages as well. Hence, it is important to understand whether you should have a credit card or not. Credit card can be boon if used properly and a bane if used without restrain. The power of the credit card ultimately lies in the hands of the holder.
