Due to our daily transactions, both at a physical store and online, we can’t ignore the importance of credit cards. A credit card will not only offer you the convenience of purchasing something without having that amount in your account, but you also get the benefit of paying later.
However, there is no suitable product without some disadvantages. So let’s take a look at the advantages and disadvantages of using a credit card. Understanding these pros and cons will give you a better idea of whether you should use a credit card or not.
8 Advantages of Using aCredit Card
1. It’s Very Useful in Times of Emergency
Emergencies are bound to arise, and a credit card can add to your financial security. You could use your credit card to take care of emergencies such as urgent medical bills, breakdown of home appliances, or unexpected expenses.
2. It Can be Used For Insurance and Travel Reservations
With the advancement in technology, you can now make travel reservations online, such as paying for hotel reservations or booking flights. Your credit card details will be required to complete each of these transactions.
Also, a credit card can come with several insurance advantages such as a collision damage waiver, travel accident, lost or stolen luggage.
3. A Credit Card Works in any Currency
You can use your credit card to purchase in a foreign country, and it will only require a fee for currency conversion. If you frequently shop online in foreign stores, you could look for credit cards that waive fees or charges for foreign purchases.
4. Credit Card Offers Interest-free Borrowing
You’re expected to pay the balance of your credit card in full every month, so interest will not be charged on what you borrow. However, if you don’t keep up with your monthly repayments, you might lose the 0% interest rate.
5. You Can Build Your Credit Rating With a Credit Card
The easiest way to build your credit score is through a credit card. Paying your credit card balance each month will increase your credit rating at the credit bureau.
You’ll have certain favorable personal loans or mortgages with a good credit score obtained from your credit card account details and your payment history.
6. A Credit Card Gives Purchase Protection
A credit card offers you an advantage of purchase protection if you lose what you bought or it got damaged by any chance. The yearly limit for some credit cards protection is up to $50000. This gives you peace of mind when shopping online.
You can easily request a chargeback if the item gets lost or damaged. Additionally, if the seller doesn’t deliver the product described on their website, you can easily get a chargeback.
7. It’s Safer Than Holding Cash
There’s little or no possibility of getting back stolen or lost cash, but when you lose your credit card, you can quickly contact your bank to freeze the card. With that, your credit card will be blocked or canceled by your bank to keep your money safe from unauthorized access.
This feature makes credit cards one of the safest forms of handling money since you can easily block the card from unauthorized use with a single call.
8. Credit Cards Help to Save Money on Existing Balance by Merging Debts
You can move an existing high-interest rate debt to a 0% interest rate with a balance transfer credit card. You’ll be able to save money on interest charges and pay off your debt faster.
Disadvantages of having a Credit Card
1. High Possibility of Credit Card Fraud
There are a lot of scammers that could take your credit card details and use them for fraudulent activities. Although you can be compensated by your bank in the end, resolving the issue might take a long time, and it might not be a wonderful experience.
2. You Could Engage in Overspending
Though you have a budget to work with, you might go ahead to exceed your budget with a credit card, thereby creating debt that’s above your means. If you can’t afford to clear the debt, it might also damage your credit score.
3. Credit Card Charges for Withdrawing Cash
If you use your credit card to withdraw money or buy a foreign currency, your bank will charge you immediately. The interest rate might differ based on the amount you withdraw most times.
4. Affect your Credit Score
Your credit score will reduce if your balances are high on your credit card and you do not pay them every month. Also, you might not be accepted for loans with a low credit score.
5. High-interest Rates
Using a credit card, you could be charged a very high-interest rate. It can be expensive if you don’t pay up the balance in a month because the debt will be accumulating each month. If you cannot pay up your balance, you attract 24%-36% steep interest charges.
6. Credit Card Surcharges
You will be charged an additional fee whenever you purchase a product with certain credit cards. This charge is usually between 0.5- 2% of your overall transaction cost. A 3% charge will only apply if it’s an Amex card.
If you are thinking of applying for a credit card, there is a need to understand the advantages and disadvantages that come with it. It will go a long way in helping you make the right decisions.