A credit card is one of the most commonly used bank transaction card worldwide. The number of credit card users over the past few years has increased tremendously due to the easiness of acquiring one and the offers that come with the cards. However, Most of the people fail to realise that credit cards can do more harm than good if he/she does not manage his/her expenses according to their income. Advantages and disadvantages of a credit card are one of the common topics that pop-up at several financial forums to debate. Why is that so? Many experts have frankly commented that credit card does harm than good if used improperly and without planning.
Anyway, with all those things going around, people are least concerned about it. Now, let’s look deep into the advantages and disadvantages of credit cards in real life scenario.
Even the hard-core fans of credit cards admit that credit cards can be a mess if used unwisely. But, for those cardholders that use credit cards with a principle and discipline never had an issue with credit cards. Here are some of the top advantages of using credit cards.
Even though credit cards have disadvantages why do people use them so commonly? Convenience is one of the main reasons. Using a credit card helps you in
Fast payment – Just 30 years ago, you had to stand in long queue for paying your bills, things were so messy that the staff had to print the bill notify you the total amount and then you had to take your wallet and then pick the money from your wallet and count it before giving it to the staff, now the staff will count the money. Eventually, when you leave the place it would have taken 10 minutes just for the billing and payment. However, credit cards made things easy. You just have to get the bill from the staff and all you have to do is swipe your credit card and it’s done.
Easy access–Using credit cards enable the user to shop without checking the bank balance every time. This feature is really helpful in the emergency situation. There are some instances where people have to visit ATM machine each and every time for checking the balance before actually purchasing something, but, if it’s a credit card you don’t have to bother about the balance, even if you lack the balance the card can pay your bills.
Lewer bank visits –Most of the credit cards come with a feature that sends the monthly transaction details to the cardholder’s personal email ID. Some of the credit cards also have features to check the balance and transaction details online.
Automatic conversion of currency – Few of the credit cards from top banks offers a service that allows the cardholder to use the credit card in other nations without any foreign transaction fees. One of the most important things about this feature is that the cardholder does not have to withdraw the cash to exchange with foreign currency. The card automatically converts the currency at best rates.
Extra Protection for the customer
This is one of the main advantages of having a credit card. Most of the credit cards come with consumer protection. The cardholder is ought to pay for only what he/she purchased. Now you might wonder what it really means. This simply means that if you have lost your credit card or someone stole your credit card and it was used without your consent, you will not be charged a dime. But here are the few conditions and terms published by the Federal Trade Commission (FTC)
- If the theft or loss of card is reported before any credit card transaction is made, the cardholder will not be charged anything
- If the theft or loss of credit card is reported within two days, the cardholder will be charged only a maximum of $50 if any unauthorized transaction is made.
- If the theft or loss of credit card is reported within 60 days, the cardholder will be charged only a maximum of $500 if any unauthorized transaction is made. However, if the cardholder can prove the physical card was not lost but the details were stolen, the cardholder will not be charged or billed a dime.
Apart from this credit card also protects the customer from other losses too.
- Purchase protection/insurance – if a credit card purchased product is damaged, stolen, or lost the amount will be refunded
- Price protection – If a credit card purchased product has a fall in price the difference will be refunded to the cardholder
- Extended warranties – free of all the charges for electronic items.
Using credit card frequently and repaying the bank the dues and credit can build an excellent credit score. Having an excellent credit score has many advantages
- A good credit score can make the cardholder eligible to lower interest rates, lower fees, and excellent rewards
- Affordable and cheap auto insurance for the cardholder
- Attractive cell phone plans and petroleum/diesel plans.
These are some of the key advantages of having and using a credit card today. However, the same credit cards have disadvantages too and they are as follows.
- Interest burden or payments
One of the most important uses and the difference between a credit and debit card is that credit card provides credit to the cardholder and the debit card does not. However, these credit provided by the credit card is not free of charges. The bank charges an interest rate on the credit provided for the user and this is one of the major disadvantages of using credit cards. If you carry a balance on your credit card you will have to pay an interest and these interest rates can be too much.
If you are credit card holder you need to pay an annual fee fixed by the credit card issuing bank. Most often the paid amount can be earned back through rewards and cash backs
The credit card issuer will also charge for the balance transfer you make to other cards to benefit the lower interest rate. This balance transfer can be useful if the interest rates on the 2nd card are considerably lower than the main card.
Once you borrow an advance amount through your credit card, the bank starts charging you the interest even before you receive the monthly bills. Apart from these interest rates the bank also charges you the service charge for the advance amount released to you.
If you pay the credit card bill late by even a day the bank will charge you the late payment fees which could be near to $30 and if the same late payment scenario repeats within a 6 month period, the bank will increase the late payment fee.
If the credit card bills are paid with the cheque and if the cheque bounces the bank will charge you returned payment fees which would be near $40.
One of the greatest disadvantages of credit card is that it makes the users addicted to using a credit card. Every time you shop you swipe your card instead of paying cash, this in turn, after a few number of shopping you will start caring less about the bill. If you are not organised in paying the credit card bills, the above-mentioned fees should be paid and it could make you broke within months.
Many studies indicate that most of the people who use credit card frequently use it because they don’t really feel the “Pain of paying”. This is the reason why people use the credit card even if they can’t pay the credit card bills. The whole concept of credit card is that it should addict the cardholder in such a way that he/she does not feel the pain of spending the money. They keep on using the card until they get bankrupt. Another important study indicated that people who use credit card spend much more than what they do with cash.
Credit cards are helpful in some situation but a can be a curse in other situations. If you are not an organised person with a principal who can keep some money for monthly and annual credit card bill payments credit card can be useful. But, if you cannot control yourself and pay the credit card bills you will be sunk in debts.