Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
  • Advantage & Disadvantage of Credit Card

    A credit card has become an indispensable part of our lives, with its ease of use and convenient pay-back options. The discounts, offers, and deals that a credit card offers are unmatched by any other financial products and spell a bonanza for the wise user. However, credit cards can become debt traps if not used correctly, or if you spend more than you can repay when the bill comes around.

    If you’re new to the world of credit, here’s a list of the advantages and the disadvantages associated with your little plastic card.

    Benefits of Credit Cards

    1. Easy access to credit

    The biggest advantage of a credit card is its easy access to credit. Credit cards function on a deferred payment basis, which means you get to use your card now and pay for your purchases later. The money used does not go out of your account, thus not denting your bank balance every time you swipe.

    2. Building a line of credit

    Credit cards offer you the chance to build up a line of credit. This is very important as it allows banks to view an active credit history, based on your card repayments and card usage. Banks and financial institutions often look to credit card usage as a way to gauge a potential loan applicant’s creditworthiness, making your credit card important for a future loans or rental applications.

    3. EMI facility

    If you plan on making a large purchase and don’t want to sink your savings into it, you can choose to put it on your credit card as a way to defer payment. In addition to this, you can also choose to pay off your purchase in equated monthly installments, ensuring you aren’t paying a lump sum for it and denting your bank balance. Paying through EMI is cheaper than taking out a personal loan to pay for a purchase, such as a television or an expensive refrigerator.

    4. Incentives and offers

    Most credit cards come packed with offers and incentives to use your card. These range from cash back to rewards point accumulation each time you swipe your card, which can later be redeemed as air miles or used towards paying your outstanding card dues. Lenders also offer discounts on purchases made through a credit card, such as on flight tickets, holidays or large purchases, helping you save.

    5. Flexible credit

    Credit cards come with an interest-free period, which is a period of time during which your outstanding credit is not charged interest. Ranging between 45-60 days, you can avail free, short-term credit if you pay off the entire balance due by your credit card bill payment date. Thus, you can benefit from a credit advance without having to pay the charges associated with having an outstanding balance on your credit card.

    6. Record of expenses

    A credit card records each purchase made through the card, with a detailed list sent with your monthly credit card statement. This can be used to determine and track your spending and purchases, which could be useful when chalking out a budget or for tax purposes. Lenders also provide instant alerts each time you swipe your card, detailing the amount of credit still available as well as the current outstanding on your card.

    7. Purchase protection

    Credit cards offer additional protection in the form of insurance for card purchases that might be lost, damaged or stolen. The credit card statement can be used to vouch for the veracity of a claim, if you wish to file one.

    Disadvantages of Credit Cards

    1. Minimum due trap

    The biggest con of a credit card is the minimum due amount that is displayed at the top of a bill statement. A number of credit card holders are deceived into thinking the minimum amount is the total due they are obliged to pay, when in fact it is the least amount that the company expects you 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.

    2. Hidden costs

    Credit cards appear to be simple and straightforward at the outset, but have a number of hidden charges that could rack up the expenses overall. Credit cards have a number of 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, which would have a negative impact on your credit score and future credit prospects.

    3. Easy to overuse

    With revolving credit, since your bank balance stays the same, it might be tempting to put all your purchases on your card, making you unaware of how much you owe. This could lead to you overspending and owing more than you can pay back, beginning the cycle of debt and high interest rates on your future payments.

    4. High interest rate

    If you do not clear your dues by your billing due date, the amount is carried forward and interest is charged on it. This interest is accrued over a period of 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.

    5. Credit card fraud

    Though not very common, there are chances you might be 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 your statements carefully for purchases that look suspicious and inform the bank immediately if you suspect card fraud. Banks usually waive off charges if the fraud is proven, so you will not have to pay for purchases charged by the thief.

    How To Use Your Credit Card Right

    To avoid being debt-laden due to unfettered spending on your credit card, keep the below tips in mind:

    • Read the fine print so you’re aware of all the charges and conditions that govern your card.
    • Don’t spend more than you can pay back.
    • Avoid putting daily purchases on your card so that you’re aware of how much you’re spending.
    • Periodically check your credit limit and rein in spending when you’ve crossed 40% of your available credit limit.
    • Choose an EMI option for large purchases put on your card to avoid having to pay interest on outstanding card amounts.
    • Always keep at least 40% of your credit limit for emergencies.
    • Plan your purchases and use your card only for planned purchases. Avoid impulse buys on your credit card.
    • Always try to pay your credit card bills in full each month to avoid the interest charges.
    • Never miss a card payment, as this will result in higher charges and a hefty penalty.
    • Approach the bank if you’ve overspent on your card. They could help you devise a pay-back plan with a fixed rate of interest to avoid you falling deeper into debt.

    FAQs on Advantage & Disadvantage of Credit Card

    1. How much credit limit can I use?

      You should regularly check your credit limit and see if you have used more than 40% of your available credit limit.

    2. What is the insurance that a credit card offers?

      Credit cards offer additional protection in the form of insurance for card purchases that might be lost, damaged or stolen.

    3. Should I take a loan or use the EMI facility on my credit card?

      Paying through EMI is cheaper than taking out a personal loan to pay for a purchase, such as a television or an expensive refrigerator.

    4. Can I pay the minimum amount due?

      A lot of credit card holders believe that the minimum amount is the total due they are obliged to pay, when in fact it is the least amount that the company expects you to pay to continue receiving credit facilities.

    5. Do credit cards offer a credit-free period?

      Credit cards come with an interest-free period, which is a period of time during which your outstanding credit is not charged interest. Ranging between 45-60 days, you can avail free, short-term credit if you pay off the entire balance due by your credit card bill payment date.

    6. Do credit cards impact credit scores?

      Yes, your credit cards do impact your credit scores. If you pay your credit card bills on time, your credit score will remain good. However, if you pay your credit card bills after the deadline, it will impact your credit score in a negative way.

    7. Is using a credit card a good thing?

      Yes, using a credit card is a good thing only if you use it responsibly. Many people do not use the card responsibly which leads to them being in credit card debt.

    8. Will I be able to withdraw cash from my credit card?

      Yes, you can withdraw cash from your credit card. However, to know if your bank offers this facility or not.

    News About Advantage & Disadvantage of Credit Card

    • You Can Now Swipe Your Card To Pay Your Traffic Fines in Kolkata

      When a traffic cop stops us for violating a traffic rule and asks us to pay the fine, not carrying enough cash has caused inconvenience. The Bidhannagar police launched a week long trial which allowed commoners to pay the traffic fines using their debit or credit card. This new system was appreciated and welcomed by many.Though many cities and towns allow their customers to pay their traffic fines online, this is the first time people are allowed to swipe their debit or credit card to pay the fine.

      Traffic sergeants in kolkata will carry a point-of-sale (POS) or electronic data capturing machine for this purpose. Upon payment, a receipt will be issued instantu. The receipt will carry the challan number, list the traffic violations, the vehicle details, the fine amount and a transaction ID. Will other cities and town adapt this new system? We will have to wait to know that.

      10 July 2021

    • E-commerce Revenues to Touch $52 Billion by 2022

      In 2017, the revenue from e-commerce industry touched $25 billion in India. According to a report published by Admitad (a leading digital and affiliate marketing company), the revenue from e-commerce is expected to grow by 20.2% per year and will touch $52 billion by the end of 2022. The report also stated that 14% of the population of this survey where frequent online purchases and 37% were internet users. In the upcoming years, the number of online buyers is expected to grow by 90%. This will boost e-commerce sales in India.

      The report also stated that about 56% of the online purchases are made via desktops and about 30% of purchases are made using smartphones. The boost in e-commerce sales will promote the use of credit and debit cards among the public.

      25 June 2021

    • Closing Your Credit Card

      There are some general steps to be followed in order to close a credit card. In order to begin the process, all outstanding dues on the credit card must be paid off. This may include some advance payments in order to clear dues that could appear after the billing cycle. Then, a credit card closure form from the company should be filled in. A penalty may be levied in case there are any outstanding loans on the credit card. After the company verifies that all dues have been cleared, the card will be cancelled and a notification will be sent out. After this, the card can be destroyed.

      There are certain points to be noted while closing a credit card. For instance, if the time for which the credit card was held by the person was less, this will have a negative impact on the credit score of the person. If the card was issued based on a fixed deposit, then the fixed deposit will be released only when the card is terminated after clearing all dues. In order to obtain full benefits, it is advisable to make use of all available reward points that remain on a card before cancelling it.

      13 February 2021

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