A credit card is plastic money issued by banks and credit card companies, which allows you to spend now and pay later. These days almost everyone has a credit card and its usage has increased after demonetization.
Like every other financial instrument, the credit card has got its own advantages and disadvantages. In this blog, we will discuss various advantages and disadvantages of credit cards.
1. Helps in making big-ticket purchases
The important benefit of having a credit card is it helps you make big-ticket purchases and then convert into affordable EMIs. If you do not have a credit card, you may not be able to afford such purchases. EMI's can be made for tenure of 3 months, 6 months, 9 months and 12 months. But, the EMI facility will not be available for gold purchases.
2. Helps you in an emergency
There may be a time when you are in urgent need of money and there is no money in your bank account. In such a case, credit card comes to your rescue. But, you must always make sure not to overspend with your credit card.
See Also: Credit Card Safety Tips
3. Provides you an interest-free period
You will be provided interest-free period, when you spend with your credit card. The interest-free period is a period between the date of a credit card transaction and the due date of payment. If today is the starting date of your credit card billing cycle, you will get a 50-day interest-free period.
4. Helps you to improve your credit score
Using the credit card responsibly helps you to improve your credit score and having a good credit score is very important for availing loans in the future. The credit card bill payments made by you will be reported to credit information companies like CIBIL or Experian. Paying your credit card bills on time has a good impact on your credit score.
5. Helps to keep track of spending
Using a credit card will help keep track on your spending, as there will be electronic record keeping. You can also identify if there are any fraudulent transactions.
6. Rewards
Many credit card companies and banks offer rewards programs to promote the regular use of credit cards. Through these reward points, you can get a discount on goods purchased from partnered stores.
1. Leads to overspending
Credit card might help you in an emergency, but at the same time, it leads to overspending. Usually, people spend more with the credit card, rather than cash. This is mainly because you will be given a certain time to pay the amount back. So, you have to be very cautious while spending with your credit card.
2. Credit card fraud
Another disadvantage of using a credit card is credit card fraud. Credit card frauds are on the rise and many people have lost their money to such frauds. So, you have to be very careful while swiping your credit card and never reveal your credit card details to anyone.
3. High-interest rate
If you do not pay your credit card bills on time, you will be charged interest on the outstanding amounts. The interest rate on credit cards is as high as 3% a month. So, it is advisable to pay off your credit card bills on time.
4. Hidden charges
Credit card has many hidden charges like joining fees, late payment fees, renewal fees, processing fees and fees for withdrawing cash through credit card. These charges on your credit card might increase your expenses.
See Also: Credit Card Mistakes To Avoid
5. Bad impact on credit score
While credit card helps improve credit score, at the same time, it can also have a bad impact on your credit score, if you do not pay credit card bills on time or if you default on card payments. Having a bad credit score will lead to a lot of problems while taking loans in the future.
Hope this blog has helped you to understand the advantages and disadvantages of credit card.
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