The use of credit cards in financial transactions is increasing day by day. However, in order to ensure its convenient use, it is necessary to know about credit card advantages and disadvantages. The use of credit cards has made transactions much easier and more secure in people’s lives than ever before. You can use it even if you don’t have money on hand.
Do you know what a credit card is?
Please read this article first: What is a Credit Card? Definition, Uses and Eligibility
However, many people have a fear of credit cards. They think, in the end it becomes a spending trap! Although this idea is not completely absurd. Because, the credit card that comes with it is very useful in big shopping. Having a credit card can be spent whenever you want. This increases the cost to the individual. And if the cost is too much, then the person is trapped in debt.
Today in this article you will be able to know both the advantages and disadvantages of credit card. As a result, if you have it, you can be more careful in using it. On the other hand, if you have not yet taken a credit card, you will know which one is best for you.
Advantages of credit card
Credit card is a very convenient banking system. As a result, the popularity of credit cards is growing among all businesses, from general customers to small and large businesses. More than 2.8 billion credit cards are use regularly worldwide Basically, this popularity or excess of use is for some special benefit. Let’s take a look at the advantages of credit card.
1. Safe than carrying cash
Everyone needs cash and it is needed almost all the time. But carrying money in your pocket or wallet is often not so safe. On the one hand, there is the chance of getting lost and also there is the fear of being stolen.
Credit cards are removing this fear. Because, if you have a credit card, you don’t have to carry money in your pocket anymore. Instead, work can be done with the card in the moment of need.
Since no one else knows your card’s PIN number, the transaction is not possible for them. And if you somehow know your PIN number, you can still keep your card safe. Just lock the card with a phone at the bank.
2 Quick transaction
Suppose you want to buy something very expensive. But you can’t raise so much money at once. You can’t even borrow from anyone. The most useful of these cases is the use of credit cards. This allows you to buy the product quickly and pay the price for several months.
It doesn’t seem like much of a debt burden. However, in this case, you have to use your own judgment. The price has to be paid according to the time limit. Failure to do so may result in a fine.
3. Interest free loan
We all know that if you want to take a loan, you have to pay a certain amount of money as interest. But credit cards do not have that problem. Many credit cards offer interest-free loans.
However, that is for a certain period of time. If the customer can repay the credit within the stipulated time, there is no need to pay extra money or interest. Although this facility does not apply to all countries. But now in many countries this facility of interest free loan is available.
4. Discounts are available
Various companies offer cash back on credit card payments to sell their products. If you buy and sell under all these offers, you will get a part back after paying the money for the product.
Credit card holders are often given special discounts. For example, a product costs $250. But credit card holders can buy it at a special discount of $230. Which does not apply to ordinary buyers.
Credit card users get many more discounts and benefits. For example, discounts on air tickets, discounts on large and residential hotel stays, etc.
5. Achieve reward points
One of the great benefits of credit cards is that you can earn reward points. Which can later be converted into money or the product can be bought with points. Typically, these points are awarded based on shopping.
Suppose you often use your card for a particular service. In that case the service provider gave you some reward points. By combining those points in this way, you get a new service from them. Also you can converted the points into money and paid the bill.
Not only these service providers, but often the bank authorities are happy to reward the customer for the transparency of the transaction. Combining these reward points can cost you extra.
6. Increasing credit score
Regular use of credit cards or frequent card purchases increase credit scores. Again, the score continues to rise even if the credit bill is paid on time. And with this score, you can enjoy many more benefits including increasing the credit limit.
7. Changing cards
A bank has more than one credit card. Each of which has different advantages. Again, the credit limit of each card is also different. You have a card, but you don’t have to use it for life.
You can change the type of card at any time according to your convenience. Due to high cost or extra interest, you can take the card instead of one if you wish. This will allow you to enjoy multiple benefits of multiple cards.
You can use different types of credit card as bellow:
- Cash back credit cards
- Rewards credit cards
- Travel credit cards
- Balance transfer credit cards
- Low-interest credit cards
- Business credit cards
- Student credit cards
- Secured credit cards
- Store credit cards
- Co-branded credit cards
Disadvantages of credit card
While there are advantages to debit and credit cards, there are also disadvantages. Maybe less for some, and more for others. Using a credit card without time is quite dangerous. You may have to pay a fixed rate to withdraw cash using a credit card. So we always have to know the advantages as well as the disadvantages before accepting anything. Let’s take a look at the disadvantages of credit cards.
1. Get into the debt trap
Using a credit card is always a means of getting a loan. Because credit means debt. So, using the card means stepping into the debt trap. And from here it becomes difficult for some to move their legs.
Even if you can buy the thing you need with a credit card even though you don’t have the money, you still have to pay for it. There is always a risk. If the loan is not repaid on time, the interest rate will actually increase, which many call a death trap.
2. Involved with interest
Have you ever wondered what your bank’s profit is in giving you the opportunity to buy on credit? Um, of course, yes, interest is their main profit. So when you start using credit cards, you get involved with interest.
And if you are a Muslim, then you need to know that in both the Quran and the Hadith, the one who is involved in usury declares war on Allah and His Messenger Prophet Mohammad (SM). So, if you are a Muslim, you should never take a credit card. Because, you can never survive by fighting with Allah and His Messenger. Both your world and the Hereafter will be ruined.
3. Hidden expenses
Paying interest rates is not the only cost of using a credit card. You may have to pay a fine if you do not pay the monthly fee on time. A certain amount of money has to be paid even if the credit limit is exceeded. In other words, using a credit card without knowing the time is quite dangerous. You may have to pay a fixed rate to withdraw cash using a credit card.
4. Uncontrolled spending
When people spend money from their pockets, they make various calculations. In particular, think of the next period. “What will I do tomorrow if I spend all today?”, such thoughts get him. So, he tries to spend less and less.
But if have a credit card, people don’t usually want to think about it. Since, he doesn’t have to pay cash, he doesn’t have to pay from his own pocket. But later that money will go out of his pocket, he does not think of calculations. As a result, credit card spending cannot be controlled.
5. Credit limit
Although you can buy and sell on credit with a credit card, it has a range. And this range is called credit limit. That is, the credit limit is the limit set by the bank for you to spend on credit.
You cannot spend more than this limit on anything. However, once the limit expires, if you repay it, you will get a new limit again. This credit limit mainly depends on the financial status, location and transaction of the customer.
6. The annual fee is higher
In the case of debit cards, there is no annual fee, only maintenance charges of $10 to $15 per year are deducted. But credit cards have an annual fee and are quite expensive.
Most credit cards have an annual fee. Also some contributions are applicable in different ways like late payment fee, balance transfer fee, overdraft fee etc. Most banks have a minimum of $120. Some banks charge more than $180 a year.
Although there are both advantages and disadvantages of credit card, its use has not stopped. Its use is gradually increasing to meet the demand for daily necessities. However, if you have a credit card, you need to know about all its costs, both public and private. Otherwise, you will have to face huge financial losses later.
It is also important to choose the right card for you. Using a wrong card day after day will only increase the debt burden. But to understand it, you have to read the whole terms carefully. You have to choose which one is consistent with your income.