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Advantages and Disadvantages of Credit cards

Credit cards are the plastic form of money that you use to pay the bills or make purchases. You can view it as a form of short term credit that you are granted and you won’t have to pay interest. Like any asset or tool that we use in our day to day lives, the credit card has its advantages and disadvantages. 

Advantages

• The credit card offers a free use of money reserve. However this only holds true when you pay your balance in full at the end of the month. Otherwise, you will just end up in debt and lose the whole reason of purchasing the card in the first place.
• The card acts as a substitute to holding large sums of money. This means you are more secure when you move around and make your purchases. There is no need to walk in fear because you are carrying around a large sum of money in your purse or having money lying around everywhere in the home. It’s light and convenient.
• The card also enables you to make purchases over the Internet and the telephone. Now, that is what I call convenient. What more would you ask for when you can shop and make your payments without leaving your desk.
• Credit cards also offer the most favorable rates of exchange when you are in foreign countries when you use your credit card for making purchases provided the surcharge is not a two or three percent charge. Let us not forget that you can use a credit card anywhere in the world without the hassle of trying to change the cash into the respective country’s currency.

This little piece of card is handy and is an asset to your lifestyle. However let us look at the disadvantages of the credit card.

Disadvantages

• Once you miss the deadline at the end of the month to pay up the balance to your credit card, interest is charged. Eventually you end up paying up more than what you spent. This means it becomes a loan and this is not a very good thing on your credit score and your financial status. When the credit card is not managed wisely, it becomes your worst nightmare.
• Identity theft is on the rise and the biggest contributor is the credit card. Once someone gets holds of your credit card number, they he or she can purchase goods in your name. You will be shocked when you receive a large bill at the end of the month of purchases that you never made. The bad thing is even if it is identity theft, you still have to pay the bill.
• Credit cards can become a temptation to extend one’s income. This is one of the major mistakes that we make. Once we have this misconception, we won’t be able to pay up the bill at the end of the month and hence the beginning of debt.