Pros and Cons of Credit Cards
Almost everything that has advantages will have its own disadvantages. In the same vein, the way you will expect to enjoy some advantages when using a credit card, you should also be aware of the disadvantages it carries. In this article, we shall look at both the advantages and disadvantages of credit cards.
Advantages of credit cards
- Ease of use: You will agree with me that it is very easy to carry just a plastic in your wallet than bundles of cash in your pocket. Your card is worth your credit limit. This means that if your credit card provides you access to $10,000, you don’t feel any additional discomfort more than someone with a card of just $50 credit. You can move freely with card and it is easy to use. If you spend cash to buy an item, you may not have the exact amount you want to pay with you. If you carry high denomination, you may have problem getting a change from the cashier. For instance, the listed price of an item may be $9.99. If you pay a bill of $10, you suppose to get back 1 cent in return. There is likelihood you may not get this amount. Even, if it is available, many people will let go of the amount. However, if you are using credit card to pay, your credit card will be debited with the same $9.99.
- Safer than cash: Ever since credit cards have become a means of payment, people don’t usually carry cash with them any more. We now operate a cashless economy. And this has made the physical attacks on people in an attempt to rob them of their cash to drop significantly. With your credit card, you can carry $20,000 without anybody knowing or suspecting you. Even, if people see you with credit card, they can’t tell what may be the worth of the card.
- Building of credit history: if you will ever apply for loan or insurance, your credit history will have to be reviewed. Without credit history, it is impossible for lenders or financial institutions to assess your creditworthiness. And it takes the use of credit cards for you to build credit history. No matter how creditworthy you are, you cannot build credit history with debit card. Therefore, one of the main advantages of credit cards is that, it affords you the ability to build your credit history.
- Currency Conversion: If you travel overseas, you may need to buy things in the currency that is different from your home currency. This means that you may need to convert your currency into the currency of the country you are visiting. With credit cards, you don’t need to bother yourself about how to convert your currency. You only need to be sure that your card is accepted in the country where you intend to use the card. That is why it is important to get card that is accepted worldwide. For example, Visa,MasterCard and possibly American Express are accepted in all parts of the world. When you use a credit card to pay for a transaction in a currency that is different from your currency, the credit card will help you do the conversion on its own at a very competitive conversion rate.
- More purchase options: With credit cards, you have different purchase options available to you. You can pay for an item over the counter through POS. You can also make an online payment. If the transaction requires that you pay cash, you can also achieve this by making cash withdrawal from ATM. Please, this may require withdrawal fee including interest payment. It is not advisable to use credit cards to make cash withdrawal as it can be very expensive. Nevertheless, there are some travel credit cards that will not charge you fee if you use your card for cash withdrawal but the interest rate may be very high.
- Debt consolidation: It is possible for you to have two or three debts with varying high interest rates and repayment period. With balance transfer credit cards, such debts can be brought into one with more friendly repayment terms. There are balance transfer cards that offer 0% introductory interest rates between six to twelve months. To actually enjoy the benefits that 0 apr balance transfer credit cards offer, it is better to pay off the card balance within the 0% introductory interest rate period. Otherwise, you may end up paying higher interest which can swallow whatever benefits you might have enjoyed by using the card.
- Purchase protection: It is not unusual for someone to buy something and later discover that the item does not meet his needs. This may necessitate that the goods is returned to the vendor. When the goods is returned, you will expect the supplier to refund the money you paid to you. The advantage of using credit card is that, you enjoy some level of protection on your card. If it happens that you return an item that you purchased using your credit card, you can be assured of refunds as a way of charge back on your card.
- Emergencies: There are certain emergencies that may require urgent payment such as medical attention. Yyou may not have time to get across to your bank to seek for credit facility. But with your credit card, you have instant access to credit and this can allow you to quickly settle the bills. Many lives must have been saved through the use of credit cards.
- Special Benefits: There are different types of credit cards in the market. They are all designed to meet the needs of certain class of people. Credit cards cash offer you a lot of benefits as as cash back, bonuses, special discount, air mileage, no foreign transaction fee etc.
Disadvantages of credit cards
Having discussed some of the advantages you can enjoy though the use of credit cards, you also need to be mindful of these disadvantages:
- Impulse buying: The fact that you are carrying a credit card that gives you instant access to cash, you can be tempted to make impulse buying without thinking through before you make the buying decision. You may even end up buying what you don’t actually need.
- Over spending: In a bid to qualify for discounts or bonuses, many card holders tend to buy beyond what they have ability to pay.
- Fees and High interest: Some credit cards require that the customers pay annual fee. It doesn’t matter whether you use the card or not. In as much that you still keep the card, you are obligated to pay this fee. Also, if you carry balance on your card, the annual interest rates are usually high.
- Debts: Credit card is the undoing of some people. If you carry balance on your card and you don’t pay it off immediately, the amount of debt will start compounding. If care is not taken, you will soon realise that the amount has grown beyond manageable level.
- Credit damage: I mentioned that one of the advantages of credit cards is that it helps you build credit history. Yes, but it can only be helpful if you use the card responsibly. If you are fond of missing payments, this will affect your credit history. It will also lower your credit score.