Advantages and Disadvantages of Credit Cards

Credit Cards

Credit cards are small plastic cards that banks, stores or other businesses offer to people to use with a line of credit. It is the responsibility of the card holder to pay off the amount of money that was borrowed on the credit card plus an amount of interest charged for using the card.  Credit cards have become increasingly popular and while the general idea behind them is good, there are those people who have abused their line of credit by not paying it back.

Advantages and Disadvantages of Credit Cards

There are so many both advantages and disadvantages of credit cards. Some of them are listed below.

Advantages of Credit Cards

Credit cards - pros and cons

Credit cards have many pros and cons. The advantages include that they are much more convenient than cash and are useful when an emergency happens and cash is not readily available. The advantages also include fraud protection, points and perks and automatic alerts. You are also able to build your credit rating with a card and making payments on time. Here are a list of the major advantages of a credit card.

  1. Credit cards aid in avoiding fraud by tracking your expenses. If an unauthorized expense comes through, the card issuer will investigate and if the card was used without your permission they will take steps to ensure your identity is protected.
  2. Online alerts are available if suspicious activity is detect on your card. The issuer will notify if any unusual charges come through on the card.
  3. Cards are used by many people to help build their credit history. Credit scores are used in numerous ways and when a person uses a credit card responsibly and makes timely payments without over limits or late payments, their credit score rises.
  4. By making payments on time and keeping the balance low on the card, a person will save money on the amount of interest charged by the card issuer.
  5. Rewards and perks are also offered by many card issuers. Perks could include air miles, cash back benefits, discounts, gift cards, etc.
  6. When traveling, it is safer to use a credit card rather than carry cash. Many travel agencies and airlines will offer trip insurance in the case of cancellations or delays, lost luggage insurance and emergency assistance for travelers.

 

Disadvantages of Credit Cards

Credit cards have their advantages but when used incorrectly or irresponsibly they have their fair share of disadvantages or risks. Since no cash is required at the time of purchase, people may not realize how much money they have spent and they fall deeper and deeper into debt with no way to pay back what they borrowed from their credit card company. Others do not see credit cards as debt, but rather they have a sense of entitlement and do not feel the need to pay back what was borrowed. Here are the main disadvantages of credit cards.

  1. Credit cards are not viewed as money that is being borrowed. They view the cards as income rather than money that has to be paid back along with the interest charged.
  2. Those who do not make timely payments will hurt their credit ratings. Your credit score is important because they are used in so many ways. Banks looking to loan money to a person or landlords will look at the credit score to decide if the person would be a good risk and would most likely pay on time.
  3. Credit cards are so easy to fall behind on payments. One missed payment will result in late fees and higher interest rates. Should a person suddenly lose their income and unable to pay their bill, the issuer will continue to assess late fees and drive the amount due on the card up to where it is nearly impossible to pay off.
  4. People are being inundated with new offers for credit cards daily. Many people possess more than one credit card and as the number of cards in their wallet increases, so does their debt load.
Filed in: Banking

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