Advantages & Disadvantages of Credit Card? – 2023

For the most part, a credit card is a necessary evil. If you have one, nobody cares. But if this is not the case, then it is a sin. Speaking of 2022, people carry more than one card in their wallets these days. But what is all this fuss about?

People who do not own a credit card yet but are considering getting one often have this question on their minds, “Do I really need a credit card?” Most of us even think that we can do everything with a debit card, so why own a credit counterpart? Well, we’re here to answer this for you.

Like most other privileges, owning a credit card has both advantages and disadvantages. You may think of it as two sides of the same coin.

A credit card is like no other if you use it wisely, as well as it can be your worst nightmare if you be careless. If you think of utilizing your credit card as a means to improve your financial health, you should definitely consider getting one.

Credit Cards: An Overview

A credit card is a pre-approved line of credit. That is, there are pre-approved restrictions. You can use the card for any transaction to the greatest.

To put it simply, a credit card can help you make reservations for a hotel, a restaurant, or pay at a gas station. Furthermore, you may use your credit card for online shopping too.

Credit card holders have to pay a membership fee when using them. You need to pay a nominal fee every year to keep enjoying the benefits. At times when you don’t have enough funds in your account, you can make purchases with the credit card you own and pay them back later.

But, there are many reasons to have concerns about your “opting for a credit card” decision. We have done our best in breaking down the major pros and cons of credit cards in this article.

Furthermore, we also tried to explain how to overcome the drawbacks of credit cards and use them in the smartest ways possible. So, let’s dig right in…

Advantages of Credit Cards

It’s a no-brainer that Credit cards have become an essential financial tool. Some of the
advantages of using them are:

Credit Luxury

With a credit card, it is easier to spend money. It basically allows you to borrow funds from a bank and make necessary purchases. All you have to do is make a financial plan so that you can pay off the borrowed amount on time. You can spend as desired (Within your credit limit) for an interest-free loan period of up to 45-50 days.

Pay Later Option

This may be the second most compelling reason to own a credit card. It has two advantages. First, an extra line of credit for the cardholder. With a high-expense emergency or special situations, there is no need to break into your fixed deposits or opt for expensive personal loans.

Instead, you can pay by using your credit card. And, when you pay back in time, you need not pay any interest, how cool is that? You may also wish to pay the borrowed amount in the form of EMIs for further convenience

Low EMI

Do you want to buy in bulk with your credit card and not worry about paying large amounts all at once? You can choose to convert your bills to EMI at a low or no extra cost. Paying your expenses, in bits, saves you from digging a big hole in your wallet with a credit card.

Building financial strength.

Paying your credit card bills on time can help you build a good financial history. One of the key benefits of a credit card is that using it correctly can help you build and maintain a healthy credit history.

Improve your credit score.

Effective use of credit cards shows that you are managing your money well. So having a credit card can help you build a high credit score. Credit cards are often used as a “credit generator” to improve and enhance your credit habits.

Properly using credit cards will help you in the future. It will exponentially improve your credit rating and prove that you can manage your loan and credit at any given time.

Safety

Credit cards are a safe financial tool. For starters, it has more security features than other financial products. New credit cards are EMV-protected (Europay, MasterCard and Visa). This will protect you from those notorious cybercriminals. Enact various security measures for transaction safety.

The Federal Reserve System of the States requires banks to prove that electronic banking transactions were not requested. So, cardholders are not required to prove their innocence in case of fraudulent online transactions.

Transfer of Funds

One of the major benefits of using a credit card is that you can transfer money from one account to another even if you’re not a savings credit card provider. This option may. reduce the associated interest fee.

For instance, if you have a bill due on a credit card and you don’t have enough funds to pay your current bill, you may transfer your balance from one credit card to another and use the interest rate on the new card.

In some cases, you may qualify for interest-free payments on non-recurring balance transfers as well. However, you will be charged a nominal balance transfer fee only.

Easy loan approval

If you own a credit card, you can borrow money from the bank. This will allow your bank to transfer funds to your bank account based on your credit limit.

Once the loan is approved, the required loan amount will be deposited into your bank account in no time. It is important to note that having a good credit/loan history can improve the chances of you getting a loan.

More benefits of Credit Card

Some credit card transactions offer many extra benefits of credit cards. These extra benefits can come as reward points, cash back, and discounts, beneficial for other transactions.

You can also choose to buy a credit card based on your own needs. This type of credit card offers extra benefits over the amount you spend (shopping, travel, entertainment, etc).

Cost savings

When you use a credit card, all your transactions will be saved automatically. You can find these details on your credit card statement. Tracking your entire credit card expenses will help you manage your money and create an effective monthly budget.

Disadvantages of Credit Cards

As we have just seen, there are a plethora of benefits to credit cards. On the flip side, credit cards have some downsides as well. As the saying goes, overeating is dangerous. Use your credit card efficiently, there are some factors that can become negative.

If you are not using your credit card effectively. Let’s talk about some of the negative aspects of credit cards that you may suffer from.

Excessive consumption

With credit cards, there’s a high possibility of you spending more than you can afford to pay back. For example, you visit a store just to buy a refrigerator, but you end up spending on three other products which you have not thought of while leaving your house.

Solution: You should not use more than 50%-60% of your credit limit. If you follow this rule strictly, you can avoid overspending and dodge debt with ease.

Least wage cycle

This is in relation to the first drawback. Your credit card issuer will set the least payment amount for you so that you can pay the rest later. Due to this very reason, users fall into excessive spending tarp and end up paying high-interest rates.

How to avoid it? Before making a purchase using your credit card, make sure to check the least amount to be paid. This will save you from the debt trap of credit card companies.

High-interest rates

The interest rate on the amount you owe on your credit card can be very high. It is way higher than personal loans and can be as high as 50% per year (annual interest rate or APR).

The solution is: Make your credit card payments on time. This makes it easy to avoid high-interest rates and saves you a ton of cash.

Hidden Fees

Remember that nothing is free in 2022 and credit cards are no different. Even if you use a “Free Life Credit Card”, the fees associated with it will still apply in some cases. So if you are not careful, you will end up paying extra.

What’s the way around this? Read the terms and conditions document before applying for any credit card. Go through all the charges applied on the transaction you make using the credit card.

Forgery

It’s a no-brainer that credit cards are one of the safest financial tools, But it still carries the risk of you being scammed. Cyber fraudsters can steal and misuse your credit card information. The cardholder is also responsible for notifying the bank within three days of the transaction.

What’s the fix? To be secure from these fraudulent transactions, you can close all international transactions on your card. We recommend that you avoid reading any suspicious emails or messages.

Also, do not give your credit card to anyone or share your credit card details like the CVV number with anyone.

Other costs

After paying a certain amount with your credit card, you may have to bear an extra fee known as a surcharge. The good news is, that it usually applies to only railway booking and fuel fees.

The solution: Some credit cards, such as gasoline credit cards, and fuel surcharges are waived. The fee is usually waived when the amount of the transaction is within the range specified by the bank. There may be a limit on the number of monthly free transactions you can make.

Cash withdrawal limit

Unlike debit cards, there is a fee for withdrawing cash from credit cards. The APR used on credit card cash withdrawals is around a whopping 40% (3.35% per month).

To avoid this, you should choose not to withdraw funds using your credit card to avoid this unnecessary extra fee. This is one of the major disadvantages of credit cards.

Extra Fees

Many credit cards have extra fees for you to bear, such as the annual credit card fee, cross-border transaction fees, withdrawal fees, etc.

So, before applying for a credit card, you should read all applicable terms and conditions to know about the hidden application fees. Also, before choosing which credit card to go for, you should understand all the fees your credit card may incur.

Least Amount

One of the main disadvantages of credit cards is the least payment amount, which is stated at the top of your credit card statement.

Many credit card holders often misunderstand that the minimum amount required for all credit card fees will never be paid in full. As a result, users who think their credit card bill is cheaper, will spend more and pay huge interest eventually.

The solution: It is crucial to study your credit card statement carefully. Also, you must understand all the major credit card terms in order to avoid this mishap.

Do I need to apply for a credit card? : final call

When used correctly, a credit card can prove to be pretty useful. The most common and valuable features of credit cards include financial luxury and convenience. It can also help you maintain a good financial record too.

This can ultimately help you when applying for future loans. Yet, you need to know how to use your credit card effectively right from the start. Failure to do so could seriously damage your credit score.

Shooting together we can conclude that you should buy it yourself. Regardless of the pros and cons of credit cards, including habits like paying your credit card bills on time and managing credit card costs in your ultimate financial habits will make you financially wise and responsible.

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