Advantages &Disadvantages of Credit Card
In recent years the use of “Plastic Money” has gained a lot of popularity. Yes, it is Plastic Money in the form of debit or credit card that you carry in your wallet which gives you an easy access to your money. A credit card is a plastic card - same as a debit card with a magnetic strip issued by a bank or equivalent authority or a financial company with an option by which you can borrow funds at the point of sale.
An interest is charged by the credit card when you borrow funds through it and it is a means of short-term financing. The interest on your credit card accrues after one month from the date the purchase is made. The limits of how much amount you can borrow are predetermined at the time of issuance of the card as per your paying credibility. The credit limit also gets revised depending upon your expenditure trends.
It is generally believed that one tends to spend more if they have a credit card. This prompts the question, whether you really need a credit card for your shopping needs or is it just another thing that you need to go flashing around. It goes without saying that credit cards provide you easy credit just when you need it and have none but only if used diligently and if not it may disturb your apple cart.
Having a look at the advantages and disadvantages of credit cards will certainly help you deciding whether to have a credit card at all?
Advantages of a Credit Card
- Credit cards bring in easy cash at your disposal even when your wallet runs out of cash. It comes handy specially when you are into a lot of travelling and carrying cash is a big hassle. They come handy especially while you travel overseas.
- Credit cards provide you with security and protection in comparison to cash. There is a lot of risk in carrying a large amount of cash in your wallet. As for credit cards, they will give you money as and when required and if you lose it or if it is stolen you can always save yourself from further loss by blocking your card immediately.
- As credit cards provide you with the facility to buy goods and services online they aid in increasing your purchasing power.
- Credit cards from few financial institutions are loaded with facilities like cash back which serve as an incentive for you and few provide reward points that can be availed in form of coupons or gifts.
- In situations like job loss or health emergencies credit cards can play a vital role by providing you with that extra money that you are desperately in need of.
- Credit cards bring along easy payment options like monthly installments which help you to write off your debit easily without asking you to shell out a lump sum amount from your pocket that may interfere with your cash in hand needs.
- You can also withhold payments with credit cards.
- Credit cards also give you a facility to withdraw cash from the ATMs. It should be noted that in such case there is no free credit period and the interest starts accumulating from the first day itself. Interest rates may vary from 25 percent to 45 percent annually. A cash withdrawal fee of 2 percent to 3.5 percent is also charged on the amount that is withdrawn.
Disadvantages of a Credit Card
- If you are the one who thinks you should have a credit card because all your friends have one then think again as this may lead you to trouble. Credit cards have to be owned only by those who can use it with care keeping in mind the billing cycle, interest rates etc.
- Owing a credit card may lead your way to a lot of impulse buying as at the back of your mind you are aware of the fact that you have credit at your disposal even though you have no cash in your account.
- You cannot ignore the fact that frauds have been done and can be done with credit cards.
- If you think you need a credit card because you are in need of building your credit limit then that’s not true at all. In order to build your credit limit it is necessary for you to pay your bills on time and it can be any bill not necessarily your credit card bill. Credit card should not be interpreted as a tool that will enable you to build your credit history.
- You really don’t need a credit card if you think you need it only to shop online. You can jolly well do it by using your debit card. Debit card can do everything that a credit card can with the only difference that a debit card cannot provide you with credit when you do not have it. So if you plan to own a credit card only for online shopping, then you may drop the idea.
- If you are not able to pay your credit card installments on time then you are charged with late fees and interest that adds on to your debt load.
- There are times when you may get so deeply caught in rolling over the balance for several months that is becomes difficult to break the vicious cycle. It is like getting caught in a credit trap.
- If you own a good number of credit cards, the lenders may not hold a good opinion about you.
- If you go by the researches that have been made, credit cards have paved way to lot number of consumer bankruptcies.
Credit card has undoubtedly made our lives easy but it is important that you use credit cards in the right way so that you can make the most of it without getting caught in the credit trap. All you have to do is to keep a track of your purchases, remember you payment cycles, try to settle full credit card payments at the end of every month, avoid spending in excess and carry your cards cautiously.
If handled properly, credit cards can serve to be very convenient but they can also lead you to a huge debt if misused. So just play carefully with the tiny plastic thing that is placed in your wallet.
Contributed By: Megha Sharma |
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Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance. | |
