A credit card is a loan obtained from a credit card issuer (such as a Bank). To fully benefit from it, you must pay all of your invoices to prevent incurring large fees.
Credit cards have become an essential part of our lives because of its simplicity of use and practical payback possibilities.
A credit card represents a financial jackpot for the savvy consumer because of the unrivaled savings, promotions, and deals it delivers.
Listed below are some of the pros and cons of credit cards.
Pros of Credit Cards
1. Convenience
Credit cards are now considered a contactless digital payment method that makes everyday transactions easier.
You won’t have to worry about long lines at the ATM or if your wallet will hold enough money when you leave for the day.
You can easily make purchases online at any time or place by using your credit cards to make payments.
Since credit cards are widely recognized in the majority of retail and corporate settings globally, they are an excellent tool for consumers to use when making purchases
2. Easy Access to Credit
You can use your credit card now and pay for your purchases later, thanks to the postponed payment feature of credit cards.
A credit card makes it simple to access a line of credit, which is beneficial, particularly when you need to make large expenditures. These work best for adding miles and points all at once.
You can pay it off when your paycheck arrives, or emergency savings run out (insurance claims typically take longer to process).
A credit card might offer a convenient credit line to help you escape the emergency.
3. Building a Line of Credit
This is crucial since it gives banks access to your credit history based on how you use and repay your cards.
Your credit card is crucial for any future loan or rental application since banks and other financial institutions frequently use credit card usage to determine a potential loan applicant’s creditworthiness.
It’s crucial to keep in mind that you don’t need debt to raise your credit score: paying out your entire bill each month by the deadline will improve your credit just as much as or even more than keeping a load on your card
4. EMI Facility
This ease is particularly useful when you need to spend a lot of money quickly. You can choose to charge a major purchase you want to make on your credit card to postpone payment if you don’t want to use all of your funds on it.
Furthermore, you can settle your purchase in equivalent monthly installments, preventing you from paying the entire amount at once and negatively impacting your bank account.
5. Incentives and Offers
Credit cards usually offer three main reward categories: air miles, reward points, and cashback.
Additionally, there are partnerships with retailers to offer promos such as meal offers for one or discounts when using a particular credit card.
These can include cash back or accumulating reward 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.
If you play your cards right—quite literally—you might be among those who get to travel for “free” thanks to the redemption of air miles, meals, or staycations. All of this without incurring any additional costs beyond your regular expenditure.
Concentrating on the incentives that matter most to you is one tactic to consider. This entails keeping track of your spending habits and combining all of your charges onto one or two cards.
6. Flexible Credit
One aspect of credit cards is an interest-free period, which is a period when interest is not applied to your outstanding credit.
You can get free short-term credit, which lasts 45–60 days, provided you pay off the amount owed on your credit card account by the due date.
7. Record of Expenses
This can help you keep track of your purchases and expenditures, which is helpful when creating a budget or filing taxes.
Even year-end summaries of your expenditure by category are provided by certain credit cards. You can develop healthier spending habits by identifying trouble areas with your transaction history.
8. Purchase Protection
Additional security provided by credit cards comes in insurance against lost, stolen, or damaged purchases made with the card.
If you want to file a claim, the credit card statement can verify the claim’s legitimacy. With credit cards, there are precautions you may take.
In most cases, you can waive any unauthorized charges by reporting the occurrence to the card issuer as soon as possible. The credit card provider will then put the card on hold to halt further transaction processing.
9. Currency Conversion
When visiting a foreign nation, credit cards can render currency conversion unnecessary. Use your credit card to make all of your purchases and let your issuer take care of the conversion.
When you use a credit card, you can get a competitive exchange rate and a fair currency conversion fee—or none at all.
When traveling, use a credit card that doesn’t charge international transaction fees to maximize your savings.
Cons of Credit Cards
1. Minimum Due Trap
Its biggest drawback is the minimum due amount at the top of a credit card statement.
Many credit card users are duped into thinking they must pay a minimal amount. Still, in actuality, it’s the absolute minimum that the company needs from them to continue offering credit facilities.
2. Hidden Costs
Credit cards include 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.
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 can cause you to overspend and accrue debt that you are unable to repay, starting a vicious cycle of debt and excessive interest rates on your subsequent payments.
4. High Interest Rate
High interest rates are a common feature of credit cards. The Federal Reserve estimates that the typical credit card interest rate is over 20%.
If you do not pay your bills by the billing due date, interest will be charged on the amount carried forward. This interest builds up over time when purchases are made after the interest-free period.
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 easy to copy a credit card and obtain private data, which allows someone else to use your card to make purchases.
6. More Expensive to Get Cash
Among the pros and cons of credit cards is the expense of getting cash. We will all inevitably encounter cash-only businesses or occasions in our lifetimes. It will cost you if you can only obtain cash through your credit card.
According to Experian, credit card issuers often impose a higher interest rate on the cash you borrow in addition to a fee for cash advances, which is often 5% of the amount or $10.
The APR for cash advances on the majority of credit cards is greater than the APR for regular expenditures.
Conclusion
As with most things in life, the use of credit cards has advantages and disadvantages. Your credit card can be a valuable and necessary financial instrument if you use it wisely and at the appropriate times.
Make sure you select the credit card that best suits your needs if and when you decide to apply for one.
