A credit card is something which allows you to use cash in advance to pay for goods or services. It is a plastic card which the user can issue from a bank. It helps you buy things on credit and you are liable to pay the amount later. A credit card comes with a credit limit, which is the total cash available to you, and an interest rate. Each time you make a payment, the amount gets deducted from the card. Given below are some of the advantages and disadvantages of credit cards.
Advantages of Credit Cards
Keep track of expenses
Credit card statements are available on a monthly basis. It shows how much you have spent during the month. This helps keep a check on the spending pattern. Year-end statements are also available with some credit cards which become helpful during tax payment.
When a credit card is available with you, there is no need of searching for an ATM machine. The card acts as an all-time ATM. It is not necessary to keep cash with you always. The credit card does the job.
In time of disputes with any merchant, in most of the cases the credit card company takes your side. If you are not satisfied with any product and the merchant is not ready to take it back, just inform the card company. They will handle it for you.
Some credit cards allow interest-free loans with a 0% period offer. The loan is to be repaid before the 0% period ends. Even though the repayment needs to be quick, it is better to save a little money than paying the interest.
Credits cards are examples of revolving credit. It does not specify any particular number of payments. You can borrow, pay back and re-borrow any number of times you want. If you need urgent cash which can be repaid in one week, then credit card is the best option because the initial interest rates are generally less.
Disadvantages of Credit Cards
Rise in debt
Credit card money is like a loan with interest. If you are able to pay only the minimum monthly payment, the repayment amount goes on increasing. You may end up in a lot of debt if the amount is not paid back as soon as possible.
Credit cards call for a lot of hidden charges. On top of the interest, there is a fee levied for late monthly payment or no payment at all. There is also a charge of about 2% for ATM cash withdrawal and a penalty for exceeding the credit card limit. All these may seem unimportant when falling for credit card.
Today’s generation just cannot live without credit card which has become an inevitable part of their lives. Unlike debit cards, credit cards offer more money that is not present in the account. But it has to be used very carefully. You tend to overuse it because a lot of money flows as credit. This may eventually lead to a lot of debt.
Introductory rate trap
People are often attracted by the low introductory rates offered by banks for the credit cards. This is actually a trap into which one easily falls. When the introductory period ends, the interest rate shoots up leaving you open-mouthed.
Misuse of stolen cards
Credit card frauds are very common these days. If not very careful, it may be misplaced or stolen by somebody because the card is small in size. It is possible to get your card number from receipts or sites. Some people are highly skilled at this and with all the confidential data they can use the cards for purchases. In case you don’t disable the card at the right time, you will lose a lot of money.