The advantages and disadvantages of having a credit card are discussed here in this article. Having a credit card can really be of help at times especially during emergency situations or if you wish to purchase your dream asset. Certain credit cards give many unique benefits to their customers and the most amazing part is earning reward points while you spend. But every such thing has cons too. There are some of the disadvantages along with advantages of using a credit card. Here are some of the mentioned advantages and disadvantages of credit card, have a read and use your card wisely.
5 Advantages of credit card
The major advantages of having a credit card are discussed below:
1. Spreading your purchase
Sometimes, it’s really difficult to purchase large assets with just your cash and debit card. You might not have much of savings left in your bank account to purchase the asset or your in hand cash is low but you are determined that you want the asset now so at this rate credit card comes at your help. With the help of credit card you can purchase a larger item such as home appliances, cars, electronics and etc. Or rather than this the credit card comes at your help in sudden emergency situations where you need to pay immediately.
2. Earn rewards
Credit cards are just not about spending but also it lets you earn reward points. The more you spend, the more reward points you gain. Reward points can be used for the purchase of various items such as on apparels, flights, tours and other expenses. You can also convert the reward points in cash. Once you collect a good number of points you can use it to pay your credit card’s annual fee. Different credit cards offer different reward programs, choose your credit card in accordance with what reward program you are comfortable.
3. Earn signup bonus
A credit card user gets the benefit of earning bonus for signing up. You can earn a larger amount of bonus points, complimentary flight tickets, low fees and less interest rate. But make sure to go through all the terms and conditions of earning bonuses before you apply for the credit card. There are cases when you need to meet certain requirements to earn bonus so if you are okay with it then having a credit card with signup bonus wouldn’t be harmful for you.
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On contrary to just earning reward points you can also earn amazing cashback with the help of cashback credit cards. These cashbacks directly gets credited into your account in the form of cash. The credited amount depends upon the credit card’s cashback rate. You can use this cash on your monthly expenses or any other such expenses. Earning cashback also depends upon the percentage of how much the shops offer to their customers. It can be less or more. You can earn higher rates up to 10% and the right card will let you earn cashbacks ranging from 1% to 5%. So make sure you go with the right credit card.
5. Travel insurance
It is one of the most demanded feature in credit cards among the users. As in today’s world people love to travel more and they will really get attracted if they see that along with just spending they also receive insurance. Most of the credit card comes with rental car protection, purchase protection insurance, extended warranty insurance and travel insurance. These complimentary extras help you in saving your time and money and also put your mind in peace. So you should always look up for a credit card which offers complimentary travel insurance to their customers.
5 Disadvantages of credit card
The major disadvantages of having a credit card are discussed below:
1. High interest rate
One of the biggest disadvantages of using a credit card is for its high interest rate. You need to pay back the money with a higher amount of interest. Sometimes you get to pay with less interest rate like 5% and 6% or else the other times the interest rate becomes higher such as 10% and 15%. Interest rate can also be as higher as 22% on both the purchase and cash advance. The interest rate goes on getting higher each month if you are not able to pay back the money.
2. Reduction of future income
Spending money with credit card means you need to pay it back at any cost to the bank. This leads to fewer saving and more of reduction in your future income. It is more of like you spend and you need to give it back. Debt means you are borrowing a certain amount of money which you have not even earned yourself. In order to protect your credit card and maintain your credit, it is normal that you have to pay back the money each month to avoid any hassle.
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Many are there who fall in the trap of misusing their credit card. They just go on spending without even thinking about repaying and get burdened by higher interest rates later on. Now if your confident about your earnings then you can think about spending more but it can also be the case that the next time you might fall in to emergency and may not have enough cash balance for repayment. So make sure to think before you spend. Also follow the terms and conditions of the credit card as to how much interest it charges if you are unable to pay.
4. Credit card fraud
Credit card fraud is very common nowadays. It is not just about keeping your credit card safe in your pockets, hackers definitely know how to hack your credit card and spend it. Hackers keep a track of the various shops and websites in which you have used your credit card, they take out your full information and uses the credit card under your name. Such fraudulent purchases can make you fall in trouble if you don’t report soon or keep a track of your credit card usage.
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5. Hidden charges
From the outer appearance of a credit card you’ll think it’s simple and easy to use. But it is not always what you see from outside. Credit cards can create a problem of hidden charges which tends to higher up your expenses without your notice. These cards contain many fees such as late payment fees, joining fees, renewal fees, processing fees and taxes. If you miss out any payment or fail to pay back the money for a certain month your fees charges gets to add up more and more.
Such things also lets your credit score go down and you might face problems in your future payments with credit card. So these were some advantages and disadvantages of having a credit card.