Advantages and Disadvantages of Credit Card

October 27, 2022

Credit cards or plastic money is a famous form of currency we encounter almost daily. It comes in handy, especially during a cash crunch or when discounted offers are available. There is no denying the fact that  Credit Card benefits are plentiful, but it can become a nightmare if one becomes careless while using it. You have to be careful when you avail of the services of credit cards as it can lead to excessive spending. We have heard on numerous occasions that every story has two sides, and the same is the case with the usage of credit cards. Excess use of credit cards can lead to you being stuck in a major financial backlog.

So, to make your decision more informed, this piece contains the advantages and disadvantages of credit cards.

Advantages

There are some advantages of Credit cards which make them worthy of usage and a distinguished product in society. Some of them are mentioned below:-

Accessibility

You get easy access to money at the back of your pocket, which is not in the form of physical currency but a card which suffices your needs. You don’t have to limit your instant expenses arising during emergencies.

Engaging in a good CIBIL Score

When you use credit cards for your payments or any other purpose, it automatically saves up payment history and account details for the same, which sums up the credit score. If your account continuously shows payments with good repayment history, your card will attach a good credit score and vice versa.

Building good Spending Habits

If you understand credit card benefits, you can easily develop good spending habits with a vision of using it correctly. Credit cards increase the scope of spending money when you have an urgency at hand, and you have no time to visit a bank, which in turn develops good spending habits.

Higher Purchasing Power

You can utilize credit card benefits when you want to book hotels and flights or get a car on rent which doesn’t allow you to choose a cash purchase but accepts credit cards. You have the liability to stop when you are not satisfied with the card provider.

Great Deals

At the time of payment or shopping online, it is normally seen that you get a better discount if you use a credit card which helps you save some extra bucks, thus helping your pocket financially. 

Comprehensive Purchasing Capacity

Nowadays, some websites and products connect us to the global network, thus increasing the demand for foreign products in the Indian market. At this time, usage of credit cards rose with exponential growth offering more services and features that give you worldwide access to manage your account.

Safer Option

As you do not have any physical cash, a credit card thus increases the chances of you being safer handling plastic money than an actual one. You have to handle a card and not a bunch of notes which increases the risk.

BNPL (Buy Now and Pay Later)

It is an imperative feature that attracts most customers to use credit cards. First and foremost, it sums up an additional credit line in your card, which helps you in emergencies and saves you from breaking any form of fixed deposits or taking any expensive loan amount from a financial institution. Second, the repayment cycle is month-long, increasing interest on the amount, and you have the choice to pay in EMI so that it doesn’t drain your pocket.

Extra Points of Reward

Whenever you make an eligible purchase on things like groceries, filling petrol/diesel in the vehicle etc., you earn extra reward points, which you can use further to make future purchases. These perks can be used to book flights, get any cashback buying a product etc. You can even earn loyalty points when you choose to book flights with some specific airlines.

Loans available at very low-cost

If you say your salary will be credited in the upcoming 5-6 days and there is something for which you have to make an instant payment, you can process the payment and pay it off after your salary gets credited. The only thing you have to keep in mind is that you pay the charges by the due date.

Purchase Protection

The main advantage of a credit card is that it works as an insurance cover for the card if it gets stolen or damaged. You can use your credit card statement to vouch for a claim if you file one.

Disadvantages

If you are using something in excess, there must be cons to it. Some of the disadvantages of Credit Card are mentioned below:-

Hidden Costs

When you get your hands on a credit card, they look very simple and easy to use at any point in time, but if you don’t use them well, it can lead you to be filled with hidden costs that could hamper your monthly expenses. The main disadvantage of Credit Cards is that it has an additional tax and processing fee attached to them, and in case the card gets misplaced, you have to pay the penalty.

Additionally, if you have some overdue payments from past time, completing them all together will negatively impact your credit card, thus creating a bad credit score which will impact your credit card usage.

Immense Interest Rates

If you make a purchase using a credit card and don’t pay the charges immediately, you will then be charged double, i.e., you have to pay the item’s original price and the interest rate charged on the item. It is advised for all time that it doesn’t sum up any balance in the credit card; it will make you pay a higher interest rate on that balance, increasing your final payment.

Chances of spending more increase

When you can spend more and have the means to do so, it increases your expenses. You can always go overboard by your over-spending and even on things which are not quite useful, thus leading you to get trapped in a massive debt cycle.

The Illusion of Having Extra Money

Being human, we get easily manipulated by any temptation that comes our way, and credit cards lie in the same category. Since credit cards are easy to use, you can be tempted to spend more money that doesn’t exist. It may feel like free money when you are spending it, but it will generate a cycle that will increase the repayment amount every time.

Reduction in CIBIL Score

You’ll see that your credit score is getting reduced by the time your end-month balance goes higher on the credit card. If you have a habit of keeping the balance almost equal to the maximum spending limit, it will negatively affect your credit score. So, it is advisable not to match your balance with your credit card spending limit. 

Multiple Credit Cards

If you have made it a habit to spend from credit cards, you’ll feel the urge to get other banks’ credit cards and offer different kinds of benefits that tempt you. These cards will only hit your pocket, and you’ll forget the repayment date and deadlines. You’ll start rotating the money into different accounts offering low-interest rates services and pile up a huge repayment amount.

The Boom in Chances of Fraud

 Mishappening never knocks. Your credit card can be stolen as easily as your physical money. You’ll be unknown of such activity till the time you check your monthly statements. After knowing it, you’ll then block your card by calling the credit card company. And it depends on the company to the company that they can even charge you a minimal amount before deactivating your card.

Limited Use

You can be charged a bit extra for what you can perform the activity freely if you choose to use a debit card, withdraw cash using an ATM card, or if you buy anything overseas.

Annual Fees

Always remember that some company charges an annual fee over the credit card. They do so to get the basic functioning running, like an issue of untimely loans etc. You can eventually pay more after summing up interest and annual fees, as you may not have considered it.

Albeit credit cards are an easy form of money which can be used on multiple occasions and makes you more versatile, they can eventually end up paying an extra ounce of money. So, spending as per your requirements and needs is always advisable, and then a credit card will be advantageous to you in every case.

Related Resource
Importance of a Good Credit Score
Low CIBIL Score & How to Better It! 
CIBIL Score for Personal Loan

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