A credit card can act as a great financial tool if used correctly. But if you do not use it carefully, high rates of interest and additional fees will make it worse for you. Credit cards have both pros and cons that are discussed below:
Finance Products Free Of Cost:
There are some credit cards that come with interest-free loans on purchases as well as balance transfers when you buy it. It is for a limited period usually for 6 months. You should pay off the minimum payments monthly and clear off the balance before the offer of 0% ends. If you do not then interest will be charged.
Earn Rewards While Spending:
You can earn money by using your credit card as some cards offer cash back, loyalty points as well as gift cards and other merchandise.
You will earn more rewards if you use the credit card very often. The rewards can be redeemed or you can save it for bigger redemption later. It is beneficial if you clear your bill completely, or else the interest that will be charged will be much more than the reward’s worth.
Build Up A Credit:
If you use your credit card properly, then it will aid you in building a good credit line. So make purchases with your credit card and pay that off timely to maintain a good credit history. Good credit will benefit you a lot by making lenders lend you more likely and offering better rates of interest on mortgages and auto loans. You future applications for loans will be hugely affected in a good way.
Do Not Have To Keep Cash
No need to be worried about the cash you have with you. Most of the places accept payments via credit cards. So you do not have to take out cash from an ATM before stepping out. But keep a proper track of your available balance so that you are sure that it covers the cost of what you will be buying.
Keep A Record Of The Expenses:
A credit card will provide you with a record of each and every purchase made. You can go through the monthly credit card statement and this will aid you to plan your budgeting easily.
At the end of a year, summaries are also sent by credit cards which are a good resource for chalking out your taxes. Moreover, whenever you swipe the credit card, instant alerts along with the detailed amount of available credit and current outstanding are sent to you through SMS and e-mails.
Ease Of Overspending:
Credit cards are easy to use. So people easily overspend. If you get tempted and make all your purchases with your card credit, your bank balance may stay the same but you will be overspending.
You will fall into huge debt if you use the credit card without keeping a track on the purchases. Never spend more than you can pay off in order to prevent high rates of interests from getting applied to future credit card payments.
Paying Only Minimum Due:
Each time you make use the credit card, debt will be created. Limit the growing debt by clearing the balance every month. But there is a minimum due that is present in every credit card bill statement.
You should not get deceived by it and believe that you only have to pay off that amount. A minimum due is actually the least payment that you are expected to make by the company in order to receive continuous credit facilities. So if you just pay this amount and continue purchasing items and making payments with your credit card, your debt will keep on growing.
In the beginning, a credit card may seem to very simple and easy to use. But slowly when you will start using it, you will find that the low interest rate was temporary. So do not pay off more interest than you have expected. Hidden costs such as taxes and joining fees, fees for renewal, processing, and late payments will make your overall expenses huge.
If you miss any monthly credit card payment, then you will have to pay for a penalty. Making continuous late payments will decrease the credit limit of your card. This will create a negative effect on the credit score along with your credit prospects in the near future.
Negative Impact On Credit Scores:
The way you make use of credit card will directly impact the credit score. So if you keep huge balances and make late payments, the credit score will definitely get impacted. Thus the chance of availing any approval and best rates for personal loans, auto loans, and mortgages will also get reduced.
Huge Interest Charges For Late Payments:
Buying, not paying and overspending will carry your balance and thus you will have to pay off the purchase amount along with the interest that will be charged on that purchase.
Carrying a balance forward will always make you pay a little more. If you keep on delaying immediate payments after any purchase, a huge balance will grow up and it will be beyond your control.
So at first, you should understand why you require a credit card and then you should get one accordingly.