Credit cards have become a vital part of our financial lives. They provide convenience and immediate emergency debt. However, handling them wrongly can also produce unpleasant results.
We talked to financial experts to discuss the various pros and cons of credit cards. So, before you consider getting a credit card, or even if you already possess one, you should know all the benefits and pitfalls of using credit cards.
Also, many people are often very obsessed with credit cards and, having spent the entire credit limit, are unable to repay it.
Conclusion: there are many pros and cons, but choosing what to give preference ultimately depends on you and your needs.
I’ve had credit cards for ages, and I love how it gives me purchasing power worldwide – locally and overseas, and online, by phone, and at stores.
The best part of having a credit card is that you can buy now and pay later. I realized this when I was getting my car repaired. Draining my checking account was not a good idea because once that money is gone, it’s gone. Instead, I paid the money through my credit card and paid the balance over time.
Another amazing thing about credit cards is they have better protection against fraud. An irresponsible person like me could end up losing every last penny if it weren’t for the credit card.
Drawbacks of Credit Cards make me want to throw them away. One of the most obvious drawbacks of using a credit card is paying back interest. Once I couldn’t pay off my balance quickly, so a high APR dragged me deeper and deeper into debt.
Then comes the late fees. Miss a payment, and you’ll pay a late fee. Using a credit card while shopping seems fun, and swiping a little piece of plastic doesn’t seem like a big deal. But when I’m not careful, I fall into suffocating debt easily, and that’s why this ease of spending has lots of cons.
A credit card is a handy tool for getting money and making cashless payments. However, you need to know not only the advantages but also the disadvantages when using it.
To begin with, let's look at the main advantages and disadvantages of credit cards. The advantages of this product include the following parameters:
That said, the credit card has several disadvantages to consider:
Credit cards have rewards. The more you spend using your credit card, the more rewards you get. You can earn things like points, money back, and airline miles. You can use those points to get gift cards, plane tickets, hotel stays, concert tickets, and more.
The other benefit to having and using a credit card is improving your credit score. It creates another account (number of accounts is a factor), gives you an opportunity to increase your on-time payment record (number 1 contributing factor), and gives you the ability to keep your credit card utilization rate low (number 2 contributing factor).
If you're not responsible, you can end up in debt really fast. That debt can end up hurting your credit score. A credit card utilization rate over 30% will hurt your score. One missed payment will hurt your score.
Also, if you carry a balance from month to month, it's costing you money. If you have a balance of $1,000 and an interest rate of 19%. Say you carry that balance over to the next month. The credit card company will add another $15.83 to your balance (1,000 x 19% / 12).
By the way, the utilization rate is how big your balance is compared to the credit you have available. If you have $10,000 of credit available and have a balance of $3,000, then you have a utilization rate of 30% actively and only by people responsible enough to pay their balance off every month.
The advantages of credit cards I enjoy are that they help me make purchases without cash or checks, and most establishments (like gas stations) will offer discounts when the purchase is made with a credit card instead of with money.
The disadvantage is that paying off all the purchases made with credit cards can be a hassle since most establishments do not offer rewards or discounts for using credit cards instead of cash.
There are also advantages and disadvantages of using credit cards for foreign currency exchange. I personally use them when I am going overseas, where we can only use US Dollars or Euros. I use them instead of traveler's checks.
The disadvantage is that most of the time, they charge a fee per purchase. Another advantage is that you can use them to buy things from other countries, like souvenirs and such.