ADVANTAGES AND DISADVANTAGES OF CREDIT CARDS

Taking a credit card is a serious decision to make. But it could be easy if we are aware of credit card's advantages and disadvantages. What are the benefits of using a credit card? Is it a good idea to take it? Let's find out.

What's a Credit Card?

A credit card allows you to borrow money from your bank to buy goods and services. In other words, it allows a cardholder to purchase things on credit.

If you handle it wisely, a credit card can be really beneficial. You don't have to pay any interest for the mony you borrow as long as you pay it back within the period of 25-42 days (it depends on the terms of use). If you don't pay the money back till that time, you'll have to pay the interest.

Of course, you may be charged with some monthly or annual payments for you credit card. It depends on the bank's offer and the agreement.

Advantages of Credit Cards

Let's find out what are the advanatges of owning a credit card:

Flexibility

Credit cards offer flexibility by allowing you to make expensive and emergency purchases when you don't have enough money. They allow you to spend money you don't have at the particular moment and then pay it back over time. Thanks to that a credit card makes your personal finances more flexible: if you don't have enough money to pay for some emergency at the end of the month, you can use it. But be careful: always be sure, that you'll have enough money to pay the balance.

Free Credit for a Limited Period

If you clear your balance before the due date, you won't have to pay any interest. That's really great, because it means, that if you use your credit card wisely, you can us it totally for free. All you have to do is remember to pay the money back within the period of 25-42 days.

Protection in case of Theft or Lose

Credit cards have 24/7 helplines. You can call and block your card at any time if it's lost or stolen. If someone steales your credit card and uses it, your are not required to pay for these purchases. The thief's purchases get added to your bill – if you report the theft before you get the bill, you don't have to pay for the purchases you didn't make.

Credit card protects you in a better way than regular debit card addes to your bank account. If a thief steals your debit card, he uses money directly from you bank account. You have to report the theft quickly and then wait for a long time to get your money back.

Additional Protection

Some credit cards offer additional protection in case a purchase goes wrong in some way. There are several types of protection:

• purchase protection: you can have your money back if the new purchase is stolen, damaged or lost,
• price protection: if you find a product you just bought with the lower price somewhere, you will get the difference,
• return protection: if the store will refuse to take back some products you want to return, you will get your money back,
• extended warranties: for some products, like electronics.

Rewards and Cash Back

Some credit cards also offer rewards or money return – cash back. For high usage you can for example get a plane ticket. There are even cards which offer cash back at a percentage of everything you spend.

Another type of rewarding includes collecting points, which are accumulated and then you can buy something for these points or trade them for a reward.

Positive Credit Score

Having a good credit report and a decent credit score is really important if you want to count on the best loan or credit card offers. We wrote about it in our article””.

Using a credit card wisely can really help you with improving your credit score or building your credit history from scratches.

Disadvantages of Credit Cards

There are many advantages of owning a credit card, but you should also bear in mind the disadvantages:

Overspending – Debt Trap

Having a credit card makes it easy to spend more money than you can afford. If you don;t pay your balance in full every month, the credit card provider will start to charge you with high interest. Then it is a simple road to a debt spiral. If you start to pay only the minimum balance every month, your debt will be raising. You have to be careful, because your debt can be quickly out of your control.

High-cost Fees

Credit cards have the highest interest rates of all types of loans. As it was said before, you don't have to pay any interest if you pay back your card within the particular period of time. But if you can't manage it, the interest you'll pay will be high. There is also a lot of fines for delaying payments on the credit card.

Hidden Costs

If you own a credit card, you can be charge with many more fees than only the interest. Often they are complex and difficult to understand, so you have to read your agreement carefully.

There are many types of additional fees realted to credit cards:

• annual fees – it's a payment for using a credit card, charged once a year,
• late payment fees – if you pay your credit card too late, even just by one day, you will be charged with a huge fee. The maximum fee companies can charge is $25, accoriding to Card Act of 2009,
• over-limit fees – you have to pay that fee if you try to charge more than your credit limit allows. The fee will be about $39. Fortunately, to charge you with that fee, card provider first has to inform you that you try to exceed the limit.

Credit cards Could Be Really Beneficial!

If you use your credit card cleverly, it is possible not to pay any extra interests. As long as you pay back the borrowed money within the period of 25-42 days (it depends on the terms of use), you won't be charged with any interest. In other words, you can borrow money for free.

Some credit cards are also extra beneficial. Using them you can earn cashback or rewards for your purchases.

You just have to pick up the right offer for you and make your payments on time to really enjoy having a beneficial credit card.

Credit cards can be free of charge and can provide you with some extra rewards or even money returns. If you are sure that you need a credit card and that you can pay it back on time every month – all you have to do is to choose wisely!

Author: Olga Gierszal