A credit card is basically a small plastic card issued by the government, thus in possession by a person (the cardholder) to enable him to pay the merchant for the amount of goods and services he has bought. They are a convenient substitute of cash and cheques, and are an important component of electronic and online commerce.
Pros of credit cards:
- If you use your card smartly, it’s possible to borrow for no cost while getting extra protection on your money exchanges and you can even have cashback and reward point while spending.
- Credit card saves the time, trouble and responsibility of carrying cash around or looking for an ATM. Thus, it is an extremely convenient way of keeping money in-hand. If you want to buy something expensive and do not have the cash at that moment, you can simply use your credit card, but only sensibly!
- The best part about credit cards is that you can keep a track of your expenses through card statements. Some cards even provide a year-end summary really helping you out at the time of tax payment.
- Cash advances are quick and convenient putting cash in your hand whenever you need it. A huge number of discounts on products or free jet miles, there is something for everyone. Also, credit card companies provide incentives on the amount of money spent by you on your purchases.
- The disputes related to transactions are mostly solved by the company itself. If your merchant is not taking back a defective product, simply check out with your card company and they take the matter in their hands.
- Most companies offer low interest introductory rates. It allows you to move balance to lower-rates cards. They also provide you with 0% purchase credit card which allows you to pay for an item in full at that particular instant, and then your payment for clearing out the balance is spread over a series of months. Just keep paying the amount before the end of interest free period and you won’t get charged, out missing this deadline would lead to a penalty payment in the form of interests being added to the balance of each month. Thus, you can benefit from a credit advance without paying the charges associated with having an outstanding balance on your card.
- You get more protection if you pay with a credit card than if you pay with a debit card, cash or check under something known as Section 75of the Consumer Credit Act. If your money is used fraudulently by someone, your card provider shall refund back the amount to you.
Cons of credit cards:
- The biggest trap set by the card providers is the minimum due amount displayed on the top of the bill statement. This deceives the cardholders into thinking that it is the total due that they are obliged to pay when in fact it is the least amount the company expects you to pay for the moment. This result in the customers assuming that their bill is low, thus leading to too much expenditure, which builds up to large and unmanageable sum over time.
- Low introductory rates are often the attracting factor but they only last for a limited time. There are also a lot of hidden charges that racks up the overdue amounts. They have n number of taxes and fees such as late payment fees, joining fee, processing fee, renewal fee.
- Forgetting to miss a single payment leads to penalties and if the payment skip happens repeatedly, the company decreases your card limit, resulting a negative impact on your credit score and future prospects. You need to keep track of all your receipts and crosscheck them with your bank statement to ensure you are not overcharged.
- Revolving card makes it easy to spend beyond your means. Since it is really easy to overuse, it leads to major overspending and owing more than you can payback, leading to start of your debt cycles and higher interest rates for your future payments.
- Also, your future purchases will become much more expensive if you carry a balance or miss a payment. And if you do not clear your dues by your billing due date, the amount gets carried forward with more interest rates. And believe me, the rates are quite high, with average rate being 3% per month, thus 36% per annum. Also since frauds are easy and can occur frequently, it’s up to you to make sure you receive proper credit for incorrect or fraudulent charges.