Credit Card Advantages and Disadvantages- Everything you need to know!

Because of the convenience with which it may be used and the variety of payment methods available, credit cards have become an integral part of our lives. There are no other financial instruments that can compete with the discounts, offers, and bargains that a credit card can provide, making it a feast for the savvy consumer. 

Credit cards, on the other hand, can become debt traps if they are not utilized properly or if you spend more than you can afford to pay back when the bill arrives. If you're new to the world of credit, here's a rundown of the different credit card advantages and disadvantages that you might want to know before opting for one!

Benefits of Credit Cards

1. Obtaining credit is simple

Obtaining credit is made much simpler with a credit card because of this. You can use your credit card to make a purchase now and pay for it later with your bank account because credit cards operate on a delayed payment basis. Every time you swipe, no money is taken out of your account, so that your bank balance is not depleted every time you swipe.

2. Creating a line of credit

Credit cards provide you with the opportunity to accumulate a line of credit. A very essential consideration is that it allows banks to see a current credit history, which is comprised of your card repayments and card activity. 

Financial organizations such as banks and financial institutions frequently use credit card usage to assess the creditworthiness of potential loan applicants. As a result, your credit card is vital for future loan or rental applications.

3. EMI facility

In the event that you want to make a major purchase and do not want to risk depleting your funds, you can choose to charge it to your credit card as a means of deferring payment. 

As an alternative, you can opt to pay for your purchase in equal monthly payments, which will save you from paying a single sum for it and depleting your bank account. Paying for a product with an EMI is less expensive than taking out a personal loan to pay for it, such as a television or a high-priced refrigerator, for example.

4. Incentives and offers

When it comes to using your credit card, you'll find an abundance of offers and incentives to keep you motivated. These can range from cash back to reward points accrual every time you swipe your card, which can then be redeemed for airline miles or applied toward the payment of your outstanding card balance. 

Lenders may also give discounts on purchases made with a credit card, such as airline tickets, vacation packages, or major purchases, which may help you save money.

5. Flexible credit

The majority of credit cards provide an interest-free period, which is a period of time during which your outstanding credit balance is not subject to interest charges. 

If you pay off the whole sum owing by the due date on your credit card statement, you can receive free, short-term credit for a period of between 45 and 60 days. As a result, you may profit from a credit advance without incurring the fees and penalties associated with carrying a balance on your credit card.

Disadvantages of Credit Cards

1. The minimum payment due to trap

The most significant disadvantage of using a credit card is the minimum amount due, which is listed at the top of a billing statement. A lot of credit card customers have been duped into believing that the minimum payment is the complete amount they are required to pay, while in fact, it is the smallest amount that the firm requires you to pay in order to continue obtaining credit facilities from them.

As a result, clients mistakenly believe their bill is little and spend even more, incurring interest on their outstanding balance, which can quickly balloon into an untenable sum over time.

2. Hidden costs

Credit cards appear to be basic and uncomplicated at first glance, but they include a variety of hidden fees and levies that can add to the entire cost of the transaction. Taxes and costs associated with credit cards include late payment fees, joining and renewal fees, as well as processing fees, among other things. 

The failure to make a credit card payment may result in a penalty, and making many late payments may result in the lowering of your credit limit, which would have a bad influence on your credit score as well as your future credit opportunities.

3. Ease of overuse

Because your bank balance remains constant when you use revolving credit, it may be tempting to charge all of your purchases to your card, leaving you completely oblivious of how much you owe. Overspending and owing more than you can afford to pay back might result, setting off a vicious cycle of debt and excessive interest rates on your future payments for the foreseeable future.

4. High-interest rate

If you do not pay your bills by the due date on your billing statement, the amount owed is carried forward and interest is applied to the amount owed. During the interest-free period, interest is accumulated on purchases that are made after the end of the interest-free period. With an average interest rate of 3 percent per month, which equates to 36 percent per year, credit card interest rates are quite expensive.

5. Credit card fraud

There is a potential that you will become a victim of credit card fraud, even if it is not particularly prevalent. Because of technological advancements, it is now feasible to clone a credit card and obtain access to personal information, allowing another individual or organization to make transactions using your card information. 

Check your bank statements closely for purchases that appear strange, and notify the bank as soon as possible if you suspect credit or debit card fraud. If the fraud is established, banks will normally waive charges against you, meaning you will not be responsible for any transactions made by the thief.

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