Credit Cards: Advantages and Disadvantages

Many of us might be using credit cards. They have become a common method to deal in goods and services. Credit cards are issued by banks and financial institutions that act as an alternative to money and can be used when you are low on cash. But should you use them? Stay tuned till the end of the article, and you will know 

• What are credit cards?
• What are the advantages and disadvantages of having a credit card?
• Should you have a credit card or not?

What are credit cards?

Credit cards are rectangular-shaped plastic cards that allow you to purchase goods and services on credit without using money.

Disadvantages of credit cards

These are the must-know disadvantages of having a credit card for everyone:

1. Creates liability

When you use a credit card, it creates a liability for you. It might solve your problem when you need money, but it is temporary. You will have to return the amount with a higher interest at a later date if you fail to repay on time. 

2. Bad credit history

If you fail to repay the money you borrowed using a credit card it will lower your cibil score. A bad cibil score means a bad image that won’t let you qualify for loans in the future.

3. Creates debt

Using a credit card can become your hobby. It’s not good to rely on or be dependent on a credit card. You may start spending more than your earnings, which can create debt. For example, when you purchase a product using a credit card that is more expensive than your salary, it ultimately puts you in a financial crisis.

4. Payment trap

It might be difficult for the borrower to repay the borrowed amount at once. Therefore they allow you to make a minimum payment. Initially, this arrangement might be satisfactory, but the remaining amount gets transferred to the next month with interest.

Advantages of credit cards

1. Tension-free shopping experience

A credit card is beneficial for salaried persons. It allows you the facility to buy now and pay later, which enables you to make big purchases. Also, it protects your savings from getting disturbed.

2. Cashless payment

These days, credit cards are accepted everywhere. It is not wrong to say that credit cards are accepted worldwide. It can be used as an alternative in place of cash. It is easy to understand and simple to use a credit card.

3. Access to perks

A credit card has extra benefits, but it depends upon your credit card issuer. It may include many additional offers like cashback, other rewards, and special discounts on travel tickets, shopping, and accommodation.

4. Solves the emergencies

When you are in need of urgent money and don’t have enough cash, you can use a credit card. Credit card helps to solve your present problems. But also remember to pay the used money on time to avoid a high-interest rate.

5. Makes better credit score

People also use credit cards to improve their credit scores, which allows them to secure future loans. Paying your used amount before time helps to improve your credit score.

6. EMI facility

As we discussed earlier, a credit card doesn’t let your savings get affected. One of the main reasons is the EMI facility. The EMI facility allows you to pay for the assets you purchased in installments.

So, should have a credit card or not?

Using a credit card is not wrong. But you have to be careful while using a credit card. Do not make it a habit and be dependent on it. If you use a credit card or are planning to get one, use it responsibly. Be informed about the terms and conditions of using a credit card.

Source:

• https://www.kotak.com/en/stories-in-focus/cards/credit-cards/what-is-a-credit-card-what-are-the-credit-card-benefits.html
• https://cred.club/credit-card-bill-payment-online/articles/pros-and-cons-of-using-a-credit-card

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