One plastic rectangular piece can be a great help at times. Can you believe that even this one card can make you fulfil all your wishes when your wallet fails you?
We are talking about credit cards and how it is now one of the essential parts of most of our lives. A credit card is a standard card that a bank or financial institution issues.
It allows the customers to borrow a certain amount as loans and spend it for various purposes. However, you can use it for the merchants that accept it.
Just like any other loan, you need to repay the amount borrowed through credit cards for interest. For ease of use, it is important to understand the pros and cons of credit cards.
Although the advantages are more than the limitations, sometimes the interest rates can be challenging for the borrowers.
Do you want to have a new credit card? Please ensure all the facilities and rules before taking it.
Enjoy smooth usage of the credit cards and avoid paying additional charges.
Here we go with various information to make the process effortless for you.
Pros of Using the Credit Cards
Credit cards do not necessarily mean only making purchases and repaying the loan. The list of pros and cons of credit cards are many that you need to know.
Here, we describe some of the benefits that you get after having a credit card.
Here are the pros discussed in detail.
Convenience
Among the credit card benefits, the primary important point to consider is convenience. Furthermore, it facilitates quick and effortless shopping without the need to carry liquid cash.
In the digital era, this grants you a convenient way of making different payments. It covers your deficit and gives you a certain amount of time to repay back.
Rewards Programs
Credit card rewards are one of the best features of possessing this plastic device. These reward programs fetch you points and miles. With the help of the points, the total amount payable becomes less.
Moreover, you may also get several offers for cash back. You need to know the rules thoroughly to take the maximum advantage. Navigate the program fruitfully by understanding the rewards programs well.
The loyalty programmes are brilliant strategies to support customers. Therefore, the borrowers will get multiple cash benefits and discounts and get more encouragement for using the card brand.
Building Credit History
Are you aware of your credit history? If not, please contact a financial advisor and understand your position for purchases on credit cards.
If your credit history is strong, this implies that you have a favourable credit score.
Therefore, it leads to more financial freedom as you qualify for loans with low interest. These help a lot after retirement or during any sudden emergency.
Therefore, try to use your credit card responsibly to avoid unnecessary interest charges. You may make payments early, maintain consistency, or utilize the credit less for a good credit score.
Purchase Protection
Another important advantage of credit cards is Purchase Protection. This supports you in case of loss and theft cases.
However, most credit card agencies will require the cardholder to submit a police report filed immediately after the theft.
Fill up the respective claim form to ask for compensation. If the theft items include your card, you may get benefits for that and automatic blocking of the same.
The benefits are also available for instances like repairs or replacement of damaged cards, wrong transactions, or missing items.
They are incredibly helpful for online transactions. Hence, you should focus on this feature while counting the credit card benefits.
Emergency Expenses
Undoubtedly, credit cards act as a financial safety net and let go of your burden during emergencies. Urgent conditions can come without knocking.
It can be any financial need, medical emergency, or accident. Without any delay or waiting for a source of funds, you can get immediate medical attention with the help of instant funds.
Furthermore, you can also use the credit card for sudden need of repairs. Due to an earthquake, your home can get severe damage.
Similarly, your car can be subject to a severe accident. The credit cards can become your saviours for covering such emergency expenses.
Cons of Using Credit Cards
We have so far discussed the advantages of credit cards.
However, in this piece on the pros and cons of credit cards, we will discuss the drawbacks too. So here are the common limitations that you may face after getting a credit card.
Interest Rates
Interest rates are crucial factors while you have a credit card. Moreover, if you delay repaying the respective amount, you must bear additional expenses.
In this case, interest rates refer to the rate at which you make payments for utilizing the credit. Here, the name is Annual Percentage Rate and is charged on a per-annum basis.
While repaying the credit card debt, you should be aware of the balance. Please ensure the balance is sufficient to let you spend the credit on emergencies.
In case the balance is too close to the credit limit, it becomes risky. You may have to pay high interest or late fees for increased debt amounts.
Fees
The next disadvantage of credit cards is the high fees. Apart from the borrowing cost, you may have to bear several credit card fees or late fines. It can hamper the overall credit score.
However, if you want to keep a positive score, please be aware of all kinds of fees. Some of them are annual fees, balance transfer fees, late payment fees, credit card replacement fees, etc.
Temptation to Overspend
Furthermore, credit cards can become an addiction after some time. It can tempt you to make more purchases and utilize the credit unnecessarily. It can ultimately affect your daily living adversely.
You need to have control over your emotions or desires to avoid credit card temptations. Holidays are the biggest occasion when you tend to spend more.
Please avoid overspending by using some smart tricks. For example, you can create a realistic budget, make a checklist of to-purchase items, prefer DIY gifts, or take advantage of the discounts.
Credit Score Impact
Are you having difficulties paying the credit card dues every month? Please plan the payment schedule to lessen the burden. Always remember that no matter what, maintaining a credit score is very important.
If you continue using the card randomly without thinking about the limit, it may result in financial distress.
Therefore, consider the credit card’s impact on your expenses before utilizing it. At least, try to keep the utilization rate below 30%.
Debt Accumulation
Having multiple credit cards or maxing out the card limit will mean higher debt accumulation. As a result, you may face challenges while coping with the credit card debt.
Therefore, responsible use can help you manage a favourable lifestyle without unnecessary debt burdens.
Some tips to avoid such cases are;-
- Cautious use of the card
- Do not skip payments
- Be alert about the credit card frauds
- Make timely payments of the dues
- Prepare budgets with the help of credit card
Choosing the Right Credit Card
You should analyse the features and choose the right credit card to satisfy all your needs.
Types of Credit Cards
Choosing a credit card is very important out of so many varieties. Moreover, each card comes with numerous advantages and its own limitations.
Therefore, you should be well aware of the features before selecting the card.
The main credit card types are as follows:-
- Reward credit card
- Business credit card
- Shopping credit card
- Travel credit card
Reading Terms and Conditions
You should be conscious about the credit card terms so no one can defraud you. Please have proper knowledge about the interest rates and the late fees.
Moreover, you must pay attention to the clauses defining the payment due dates and terms and conditions, cash advance APR, deferred interests, annual fees, penalties, intro offers, etc.
Comparing Offers
Comparing credit card offers is simple when you understand the features of the cards. You can verify the responses for different rewards and loyalty programmes, and the accessibility of the card.
For favourable credit card selection, please consider the loyalty points, due dates, credit limits, annual percentage rate, intro fees, etc.
Tips for Reasonable Credit Card Use
Budgeting
For responsible credit card use, you can go for budgeting. Some of the best strategies for budgeting are:-
- Two-bank budgeting
- Zero-based budgeting
- Cash-budgeting
- Prepaid debit-card budgeting, etc.
Timely Payments
The timely payments for credit cards can always keep your credit score positive. Moreover, it always opens more avenues for applying for other loans or credits. Delays in credit card payments can lead to high-interest rates or low credit scores.
Monitoring Statements
Monitoring statements regularly can help you remember the due dates. Furthermore, it highlights any incorrect charge or lets you take steps for inappropriate billing amounts.
You can also know about any dues that you have skipped before. It also offers credit card security. Thus, you can detect any unauthorised transactions and ensure a good score.
FAQ
Are all credit cards the same?
No, there are several credit cards with different features. You need to understand the benefits to choose the right one.
How do credit card rewards work?
Credit card rewards are special points or miles that you get for eligible spending. You can also earn a welcome bonus for some cards. This will provide you with cash back, or discounts.
What is the impact of a late payment on my credit score?
Late payment will result in paying higher amounts with interest charges or late fines. It can also hamper the credit score. A delay of 30 days or more can lower your credit score by 100 points.
Can I build credit without a credit card?
It is difficult to do so. However, if you do not have a credit card, you can request your landlord to provide reports for on-time payments, or you may take any loan, or obtain a secured card.
How often should I review my credit card statements?
It is better to review the credit card statements every month to avoid any discrepancies.
Conclusion
The pros and cons of credit cards can ensure smart dealings with this plastic money. Moreover, you can utilize the credit appropriately without overspending. Always try to improve your credit scores by avoiding any defaults in the payments.
Besides, take note of all the rewards or loyalty points that your credit card gives. Take advantage of them to enjoy security during emergencies.
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