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There are a range of good reasons for owning a credit card. However, in the wrong hands, credit card misuse can lead to financial hardship. You need to understand credit card advantages and disadvantages to get the best value for your money.
A credit card is an easy way to borrow cash for a purchase you wish to pay off over a number of months. They are an essential item for most people, with the advent of internet shopping and bill pay methods rapidly superseding traditional retail shopping and over the counter transactions. Credit cards are also great for business and travel, and are accepted world-wide for a huge range of purposes.
On the other hand, credit cards have an unsavoury reputation for high interest rates, and cause financial strain for people inexperienced in their use. Here are some credit card advantages and disadvantages worth considering.
Advantages of owning a credit card
Convenience: A credit card will save you the trouble of finding a nearby ATM, and you will need to carry less cash with you.
Statements and records: You can easily keep track of expenditure, receive ongoing bank statements and retain records for tax purposes.
Cash flow: A credit card is a convenient way to obtain a cash advance at a time when you need it most.
Credit card perks: Credit card companies offer various incentives to lure customers, such as frequent flier miles and shop credit discounts. Many retail outlets offer incentives that add up with ongoing customer purchases.
Build a good credit rating: A history of controlled credit card use will supply banks and other lenders with a positive impression of your money handling skills. It will also help negate past bad credit history.
Protecting your purchase: Credit card companies often provide dispute assistance in cases where you have purchased defective or falsely advertised products.
Lower-rate cards: Credit card companies offer a variety of card types, allowing you to change to a lower-rate card that suits your needs.
Disadvantages of owning a credit card
Overuse: Credit cards can make you feel you have an abundance of ready cash. A credit card used inappropriately can result in overspending, leading to repayment difficulties.
Extra paperwork: It’s not uncommon to lose track of spending. You will need to keep receipts in order to check them against bank statements.
Missed payments: The convenience of owning a credit card will soon diminish if you miss a payment and end up paying much more than required for your purchases.
High interest rates: Credit cards are notorious for high interest rates, which can often outweigh benefits. Many purchase savings offered by credit cards are also available elsewhere.
A cycle of debt: Customers sometimes obtain a new credit card to alleviate debt on their present card. This approach leads to a cycle of debt, with increased monthly payments.
Credit card teaser rates: Companies lure customers with attractive introductory interest rates. Although initially helpful, the expiry of the introductory rate is also the start of a new rate which can be much higher and difficult to manage.
Credit cards are here to stay, and it’s fair to say they are useful for almost everyone. How you use your credit card will determine its real value.
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