Nowadays, credit card has evolved to be a crucial part of human lives. The discount offers and deals that a credit card offers are unmatched by any other financial product. Well, credit cards can also become debt traps if not used correctly. Here’s a list of the pros and cons of having a credit card.
Pros of Credit Cards
Easy access to credit
One of the biggest pros of a credit card is its easy access to credit. Credit cards are processed on a deferred payment basis. It means one gets to use your card now and pay for your purchases later. The money used does not go out of your account.
EMI facility
Making a plan for large purchases can be solved by opting for a credit card as a way to defer payment. One can also decide to pay off the purchase in associated monthly installments. Paying through EMI is cheaper than taking out a personal loan to pay for a purchase, such as a television or an expensive refrigerator.
Incentives and offers
Most credit cards come packed with offers and incentives to use the card. Well, the incentive ranges from cash back to rewards point accumulation each time one swipes the card. This can be later repaid as air miles or used towards paying the outstanding card dues.
Flexible credit
Credit cards come with an interest-free period, which is a period during which the outstanding credit is not charged interest. Ranging between 45-60 days, you can avail free, short-term credit if one pays off the entire balance due by the credit card bill payment date.
Cons of Credit Cards
Minimum due trap
The biggest con of a credit card is the minimum due amount that is displayed at the top of a billing statement. Several credit card holders are misled into believing the minimum amount is the total due they are committed to paying, whereas it is the smallest amount that the company wants the customer to pay to continue receiving credit facilities. This results in customers assuming their bill is low and spending, even more, accruing interest on their outstanding, which could build up to a large and unmanageable sum over time.
Hidden costs
Credit cards seem to be simple and precise at the beginning. However, it has several hidden charges that could rack up the expenses overall. Credit cards have several taxes and fees, such as late payment fees, joining fees, renewal fees, and processing fees. Missing a card payment could result in a penalty and repeated late payments could even result in the reduction of your credit limit.
High-interest rate
If one does not clear the dues by the billing due date, the amount is carried forward and interest is charged on it. This interest is accrued over some time on purchases that are made after the interest-free period. Credit card interest rates are quite high, with the average rate being 3% per month, which would amount to 36% per annum.
Credit card fraud
Well, there are chances one might be a victim of credit card fraud. With advances in technology, it is possible to clone a card and gain access to confidential information through which another individual or entity can make purchases on your card. Check the statements carefully for purchases that look skeptical and inform the bank shortly if one suspects card fraud.
In summing up to avoid being debt-laden due to excess spending on credit cards, one does not have to spend more than one can pay back and avoid putting daily purchases on the card so that one is aware of how much they’re spending.