Advantages and Disadvantages of a Credit Card

What is a Credit Card?

 

Literally, a credit card is a plastic device, with the holder's information stored in the embedded chips. It is meant for making payment when the holder buying goods and services from a vendor. Every credit card come with a credit limit, which is the maximum amount eligible to be spent by the holder.

 

Upon spending via a credit card, the holder is obliged to pay back within a specific period of time. If he do so, there will be no interest charged on the amount spent. If he fails, interest will be accrued on the unsettled amount. Interest charged on the balance amount of a credit card is very high. Normally, it is the highest among all types of credit offered by a financial institution or a bank.

 

Issue of credit card usually determined by a few factors. That includes one's income, number of dependants, amount of monthly commitment like mortgage or car loan, and the most importantly, a good credit history. If the applicant's credit score is high, the chances of getting the card approved are usually higher. Credit limit assigned to him will also be higher.

 

Advantages of Credit Card

  • Increase power of purchase. Owning a credit card makes purchase become easier. Some expensive items usually requires a person to save for a period of time before he can afford it. With credit card, this is no longer a problem as he can make a purchase first and pay later.

  • Items purchased with credit card can usually enjoy protection if they have been stolen, lost or damaged. With this feature, credit card holders no longer have to worry about waste of money should these incidents happen.

  • Some credit card companies offer free personal accident insurance when card holder using his card to purchase air ticket from a flight company. This helps him to save money from having to buy a temporary personal accident coverage when he is about to travel.

  • Credit card is very useful during emergencies, especially when a remarkable amount is required to settle the medical bill or probably when the car breakdown and need immediate cash for repair. One may not have access to the ATM at certain time. Even he does, he may not have enough cash in the account.

  • Usually a credit card comes with certain complimentary benefits. Discount offers may be one of them. Card holder can enjoy certain discount when making purchase at certain outlets authorized by the credit card company. On top of that, the rewards point of the credit card can also be redeemed for goods and services. Some may also redeem free air ticket using their mileage point accumulated in their credit card. These are the side benefits which help card holder to save money.

Disadvantages of Credit Card

  • Credit card, if not managed well, may cause some disadvantages. The most common one would be overspending. It is always much easier to spend than to save. If the card holder fails to live within his means, he may be falling into the trap of credit card abuse and getting himself into debt accumulation.

  • The interest rate of credit card is always high. For those who have the habit of not fully settling the monthly due amount, may eventually find themselves can't cope with the monthly interest charged on the balance amount. If the condition turns severe, threat of bankruptcy might be awaiting.

  • Credit card fraud is another issue arisen from use of credit card. It is a form of identity theft where someone uses the credit card details not belonging to him to make purchase. The amount of purchase will be charged to the victim, who is the actual owner of the card.

Manage your credit cards well. Use them wisely. You may find them do more good than harm to you.

 

 

Recent Credit Card Articles:

More on Life Planning