Hello friends how are you all? Today we are going to talk about What Are The Credit Cards Pros And Cons? Credit cards can be a fantastic way to make sure you always have funds available for purchasing things when the time arises, and they are popular with people who don’t like carrying cash.
The downside of credit cards is that they can be tempting to spend on items you wouldn’t normally buy if it weren’t so easy. If you swipe your card without realizing it, your savings can be reduced before you know it.
It’s wise to understand how credit cards work and what they are used for before you sign up for one. Here is Moneysmart’s guide to credit cards.
What Are The Credit Cards Pros And Cons?
What Is A Credit Card?
A credit card is a small plastic card with a magnetic strip on the back that can be used to buy things up to a certain limit, known as your ‘credit limit’. You can use it in stores or online just like any regular EFTPOS card. In fact, MoneySmart recommends using your credit card as an EFTPOS card to take advantage of the extra protection you have as a consumer with credit cards.
Credit cards work by allowing you to pay for things over time. You can delay payment or make smaller payments until everything is paid off. If this isn’t possible, there are other ways to pay off your card.
Remember that credit companies make their money through interest and there may be fees involved in making repayments and getting a new card if yours is lost or stolen. MoneySmart suggests talking to the MoneySmart financial planner before deciding whether a MoneySmart credit card is right for you.
What Are The Benefits Of Credit Cards?
As you can expect, credit cards have a lot of benefits that you don’t get from cash or debit cards. The following are the main pros of credit cards:
- They offer a great way to build credit
When it comes to borrowing, credit history is an important factor in gaining approval. If you can show that you can pay off credit well in the past, this is a positive sign to banks and other lenders.
- They are useful for emergencies when there isn’t much money around.
If your car breaks down or you need medical attention unexpectedly, it may be reassuring to know that you have funds available if necessary.
- They are accepted worldwide.
Whether you’re traveling or buying things online, being able to use a credit card is incredibly useful when it comes to paying for goods and services. If you know your credit limit, you can plan ahead so that you don’t get yourself into trouble with debt.
- They offer more security compared to debit cards and cash
Credit companies offer liability protection. This means that you won’t be held responsible for up to $500 of fraudulent transactions on your card if you don’t report the transactions within 60 days. Besides, a majority of credit card providers are on the lookout for suspicious activity and will let you know if there is any.
- Reward points
Rewards points can be very useful and it’s worth keeping an eye out for a card that offers rewards you think you’d use. This includes travel-related perks like extra frequent flyer points or cashback on grocery purchases.
What Are The Drawbacks Of Credit Cards?
Credit cards have a few disadvantages as well, especially when they are not used responsibly. The following are the main cons of using credit cards:
- Higher cost of borrowing
Credit cards charge users a higher interest rate than other traditional loan products, which means you could end up paying more in the long term if you carry a balance. Always make sure you pay your monthly repayments on time to avoid any extra charges.
- Dangerous spending habits
It’s easy to go overboard with buying things when they are so readily available. MoneySmart cautions against using a credit card as a way to cover up a lack of savings and avoid going into the red or going overdrawn with your bank account or missing out on important payments.
- You could easily damage your credit if you apply for too many credit cards.
If you apply for many cards at once, this can be seen as a negative sign to lenders. They might worry that if you don’t pay off your debts on time because of over-borrowing, it could damage your credit history.
Credit cards have a lot of benefits, but they can also leave you in debt if you don’t pay them off. As long as you practice responsible habits while using your card and spending within your limits, credit cards can be a great way to keep track of expenses and earn rewards without worrying too much about carrying cash. Remember that it’s always better to be safe than sorry.