What are the Advantages and Disadvantages of having a Credit Card?

A credit card can be an asset to your lifestyle but if it is not handled carefully then it can easily become a liability and you could get yourself into some serious debt.

Before you get a credit card, it is important to carefully consider and understand the many advantages and disadvantages of this financial tool:

Advantages of having a credit card:

1. Helps you to establish a good credit history – People with good credit generally receive better rates and terms on mortgages and auto loans
2. Provides a convenient payment method for purchases made on the Internet and over the telephone without having to send cash or a check. Also, some companies do not accept cash or checks purchases – For example, most airlines, hotels, and car rental agencies
3. Is more convenient and safer than carrying cash
4. Offers free use of funds and delayed paying for purchases for about 20 days, provided you always pay your balance in full, on time
5. Gives you incentives, such as reward points, that you can redeem
6. 24/7 access
7. Offers interest-free payment from time of purchase to the end of the billing period
8. Allows for the instant payment of purchases, allowing for instant receipt of goods and services
9. Offers fraud protection
10. Allows access to unsecured credit which means that no collateral will be required against amounts charged
11. Take advantage of laws that protect you from defective goods or services not provided that you paid for with a credit card. Credit cards may also offer you additional protection if something you have bought is lost, damaged, or stolen. Your credit card statement can vouch for the fact that you have made a purchase if the original receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases
12. With credit cards you have more benefits such as, insurance cover when buying an item, cash back, air miles and you can also save on holidays when booking online
13. Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget, sometimes emergencies such as, your car being involved in an accident, may lead to a large purchase like the need for a rental car

Disadvantages of having a credit card:

1. May damage your credit rating if your payments are late. If a credit card payment is not made or is made late it will result in increased interest rates, penalty fees, a decline in your credit score and denials of future credit
2. Allows you to build up more debt than you can handle – it is easy for you to lose control of your spending. Most credit cards do not require you to pay off your balance each month, so even if you only have $200, you may be able to spend up to $500 or $1,000 on your credit card. This money spent will have to be paid off and the longer you wait, the more money you will owe since credit card companies charge you interest each month on the money you have borrowed
3. Costs much more than other forms of credit, such as a line of credit or a personal loan, if you do not pay on time
4. May have complicated terms and conditions. For example, a credit card offer may state that there is no annual fee for the credit card yet in the fine print it may state that the ‘no annual fee’ offer may require you to make a minimum number of purchases using the card or you will be charged an ‘inactivity fee’ which is similar to an annual fee
5. Credit cards charge higher rates when withdrawing cash – If you withdraw money out the cash point, it can be much more cost effective
6. Credit Cards have a credit limit which means you are limited to a specific credit limit
7. Easier to be a victim of fraud – When using your credit card remotely, you have a higher chance to be a victim of fraud as your credit card details may be taken and used by a third party. Also, like cash, you credit card can be stolen so ensure that you report it to the credit card company as soon as possible.

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