Gone are those days when transactions were done in cash only. There are different mediums for payment available now, and a credit card is one of the most convenient ways of doing that. No doubt credit card is a great way for managing your finances, but if you are not careful with handling and managing them, they can be risky too! Moreover, there are different types of credit cards available in the market, and you can choose any one of them depending upon your basic requirement. However, before you decide about any credit card, you should know about the pros and cons of using it.
First, let’s find out what are the benefits.
A credit card is safer than carrying cash
Carrying cash has its own hazards. You may lose some of it anywhere, or it may get stolen too. Compared to that, using a credit card is much safer. If you lose your wallet, you can block the card immediately. Some will mention that there can be fraudulent transactions, but most credit card issuers provide different security levels so that such transactions do not occur. Still, if you face any such problem, you must get in touch with the issuing authority immediately.
A credit card helps in building a credit rating
When you use a credit card regularly and make payment on time, you will find that it has a good impact on your credit profile. With payment on time, you will find that the credit score of yours is quite good. This ensures that in future you can get any other financial product with ease as every financial institution works with someone who has a good credit score.
Get benefits along with interest-free days
When you use credit cards for making any purchase, you do not have to pay immediately. You can pay after a period, and this payment should be made before the statement period ends. This means that after making a purchase, you get about 20 days interest-free. Apart from this credit card offers some nice benefits too that are great. You can avail those and save money too.
Earn reward points when you spend
Reward points are given to credit card users for dollar they spend. There are rewards cars for fuel charges, groceries, and other purchases. When you accumulate enough reward points, you can exchange them with the different offers that the bank has made. If you are a frequent flyer, then credit card benefits will be quite useful to you.
Credit card work in any currency
If you have an international credit card, then you can use your credit card in any country. There will be no barrier for currency. Yes, you may have to pay the currency conversion charges for certain credit cards, but you do not have to worry about currency conversion in a foreign land. And apart from that if you can take international credit cards where the conversion charges are waived off, then you can easily use them.
Credit cards provide you an emergency line of credit
If you have a good credit score, then it is obvious that your credit limit will increase. In case of an emergency if you do not have enough savings or cash at the moment, then you can use the credit card for making any kind of payments. You can pay off the credit card later.
Credit cards often have complimentary extras
Credit card does not come alone; rather they come with some extras. You may get travel insurance or extended warranty insurance on your credit card. Different other complimentary features are provided to a credit card user by the issuing authority. Some of the offers are getting airport lounge while flying or getting free wine while you dine.
However, you should not get overwhelmed by the benefits that can be derived by using a credit card. There are certain downsides too, and it is necessary that you understand them well before you start using it.
Paying high rates of interest
If you are able to pay off the balances of the credit card on time, it is interest-free. However, when you carry off the balances from one month to another, then you have to pay interest. This rate of interest is not very low. It may be as high as 22%. If you cannot pay on time, then you will find yourself paying hundreds and thousands more than you have spent earlier.
Damage of credit score
When you miss credit card repayment, then you have its effects on your credit score. If you miss payment of three installments, then you will find that your credit score is affected badly and it will affect when you start looking for any kind of loan.
Credit card fraud
There are a number of frauds that are conducted on credit cards. It may happen that you will be compensated in the long run but just think that what happens when you get to know that there is payment of a huge amount from your credit card without your knowledge. These things happen regularly and thus affects the user mentally a lot.
Cash advances out of credit card
If you require you can get cash advance from the credit card company, but the charges for that is quite high. Even if you are undergoing any cash equivalent transaction like currency transaction, then you have to pay quite a huge amount. Thus, it is always best to avoid taking any cash advances from your credit card balance.
Payment of annual fees
For every credit card, you have to pay an annual fee. If you use your debit card, then you do not have to bear the annual fees, but in case of credit card, there are fees. If you want to avoid paying the annual fees, then you may look for such credit card but make sure that you have checked with the other features.
Thus, using a credit card is a good option provided you know how to limit the expenses.