Credit Card - Advantages and Disadvantages
by Carmin Olivier
A credit card can be an asset to your lifestyle, but if not handled
carefully it can become a liability, especially if you find it so
convenient and easy to use that you lose control of your spending.
This short guide will help you understand how you can use your credit card
so it works to your advantage, not against you.
Advantages
A credit card can:
1. Offer free use of funds, provided you always pay your balance in full,
on time.
2. Be more convenient to carry than cash.
3. Help you establish a good credit history.
4. Provide a convenient payment method for purchases made on the Internet
and over the telephone.
5. Give you incentives, such as reward points, that you can redeem.
Disadvantages
On the other hand, credit cards can:
1. Cost much more than other forms of credit, such as a line of credit or
a personal loan, if you don't pay on time.
2. Damage your credit rating if your payments are late;
3. Allow you to build up more debt than you can handle;
4. Have complicated terms and conditions;
What is a credit card?
A credit card is more then a simple piece of plastic, it is first and
foremost a flexible payment tool accepted at 30 million locations
worldwide, and if the card balance is paid off every month, then no
interest is charged on purchases made so, essentially, short-term credit
is granted without the consumer paying any interest.
Among its many features it provides:
1. Access to unsecured credit (no collateral required against amounts
charged)
2. Interest-free payment from time of purchase to the end of the billing
period
3. Instant payment of purchases, allowing for instant receipt of goods and
services
4. 24/7 access
5. Fraud protection
However before you decide to use your credit card, carefully consider all
of the factors and weigh them against your personal needs and values.
What about credit card control?
Handling money and credit cards wisely is a talent few of us are born
with. But it is a skill that can easily be learned. The place to start is
with budgeting.
What is a Budget?
It's simply an organized way of managing your finances, basically, it
gives you an overall picture of where your money is coming from, when it's
coming in and how it's being spent. A budget should be flexible, changing
according to your circumstances.
Why Budget?
Budgeting helps us achieve short-term goals like paying the monthly bills
on time; it's also for longer-term financial goals like buying a home, a
car, paying for an education,
a wedding or a holiday. When you take control of your financial affairs,
you're more confident about the future.
A budget is key to financial control. It gives you a "Polaroid picture" of
where you stand financially and where you're heading.
Credit Card Control Tips
Use a low or no-fee credit card and save on the annual fee that some
companies charge.
Only charge to your credit cards what you can pay off in full when the
bill comes.
You might not use your credit card as much if you start believing that you
have to pay off your entire balance at the end of each month.
A good way to help to reduce what you pay on your credit card is to search
for a card with a lower interest rate. Many financial institutions now
offer at least one of these types of cards.
Remember that when you take a cash advance on your credit card, the
interest starts accumulating immediately and not on the due date of your
credit card bill.
Also keep in mind that if you make only the minimum monthly repayment you
may never get out of debt.
Conclusion:
The main advantage of having a credit card is convenience but if you're
not good at budgeting and managing your finances, the over-use of credit
cards can leave you with a debt that's very difficult to pay back.
