The interest rates paid by credit card users can be as high as 35%! With such high interest rates, if you carry a balance, by the time you pay off a purchase on your card, you may have paid several times the sale price. Unfortunately, most credit card holders don’t realize this and aren’t looking at both the advantages and disadvantages of using a credit card.
Having a credit card is a great way to pay for something when you don’t want to carry cash, but the lasting effects can be more troubling than you think. Check out some advantages and disadvantages of credit card usage below. You’ll be able to determine whether using a credit card is in your best interest or not.
5 Advantages of Using Credit Cards
Credit cards are a great convenience for the majority of people. They also happen to be very beneficial in many situations. The upsides of credit card usage are the reasons they have become so common among most people around the world. Here are the advantages:
1. It’s convenient.
Credit cards were originally created as a replacement for having cash on hand. With a simple swipe of a card, you can purchase something whenever you want. This method of using a credit card has become more convenient than carrying around a ton of cash everywhere you go. The use of credit cards has also made it easy to make purchases online or over the phone. Now instead of driving to a store, you can make a prompt purchase without leaving your home.
2. It protects your purchases.
If you purchase anything with your credit card valued at $100 to $30,000 it will be protected in the occurrence that you don’t receive your order, or if your purchase is lost or stolen. In many cases, you can qualify to receive a complete refund from your credit card company.
3. It builds credit history.
Having a constructive credit history can lead you into many future advantages. Showing your responsibility by paying your bills on time and not being overdue will allow you to apply for loans, insurance coverage, car or home financing or even a job. By being a reliable credit card holder, future lenders will be able to commend you for your actions and provide you positive accommodations.
4. You can use them in emergencies.
If you’re ever in a situation where you need money immediately for an emergency (for example, to make home repairs or pay medical bills), you can count on credit cards to be by your side. The quick access to money to will provide insurance that you may need in case of an emergency.
5. Point rewards and other benefits.
Being with a certain credit card company can lead to other benefits in your favour. Many credit cards provide further benefits such as discounts for certain stores and point reward systems. If you pay off your bills in a timely manner, you can actually save money by using rewards points.
3 Disadvantages of Using Credit Cards
Although there numerous advantages to owning credit cards, the negatives can outweigh the positives. Credit card can be extremely damaging to your financial state if they are not used correctly. If you plan on using a credit card here are a few reasons why you should be extra cautious:
1. It’s easy to overspend.
Most people think that since they have a credit card they can spend whatever and whenever they want. That isn’t always the case, especially when you don’t actually have the money to pay your monthly bill. At the end of every month you should pay your entire credit card balance (that means paying off everything you bought that month!)
If you overused your credit card, then you won’t be able to pay your bills on time, and you’ll be paying hefty interest rates. It’s important to budget your money and make suitable decisions when deciding which items you can afford and which you can’t.
2. It can lead to severe debt.
Not being able to pay back your bills each month can quickly spiral into debt. Once you are piled in debt, it can be difficult to climb out of without severely limiting your spending, even on essentials. The amount of interest a credit card company charges you at the end of the month, can range anywhere from 10-35% depending on the card.
Every month you don’t pay back your balance, your interest rate continues to compound. If you’re only paying the minimum, your total balance can balloon in a very short period.
3. It can damage your credit history.
While having unused credit is good for your credit history, making late payments or reneging on your bills can actually be a ding against your credit history. This can make it difficult for you to qualify for loans, mortgages, and other types of credit.
With massive credit debts, it’s easy to land in bankruptcy, as well, which is also a severe hit against your credit score. That’s why you should always take precautions to ensure you can pay back your bills before they come due.
4. They are susceptible to fraud.
It is important to keep your credit card in a safe place at all times. Accidentally leaving your credit card somewhere can lead to unauthorized transactions, as can online phishing scams. Also, be careful about who you share your credit card number with. All of these things can lead to fraud.
If you discover you are being charged for items that you didn’t purchase, contact your credit card company immediately and they’ll rectify the problem. Most credit card companies won’t make you pay the bill, however there can be replacement card fees. Make sure to keep an eye on all your transactions so you know how much you’ve spent, and will be aware of any fraudulent charges.
Having a credit card doesn’t mean you have the freedom to spend money whenever you want! If you are having issues paying back your credit card bills on time, Magical Credit offers bad credit loans to people receiving government income. If you need a little extra cash to help get you through all your unpaid bills, fill out a Magical Credit loan application now to see if you qualify! You can call us at 1-877-213-2088. Let us help you with your credit card bills!