The pros and cons of using a credit card
1 min read . Updated: 10 Mar 2021, 11:29 AM IST
Premium- If you only make minimum payments while shopping impulsively, you will end up creating more debt for yourself, and your credit score might get affected by frequent defaults on payment
NEW DELHI: A credit card is like a personal loan, which makes for easy availability to consumers/ households. Credit cards also offer ease of transaction at merchant outlets, letting one purchase things and pay later. However, they are among the most expensive ways to borrow in terms of interest cost.
Moreover, such convenience can induce poor financial habits, such as over spending and borrowing.
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Today, we look at the pros and cons of using a credit card.
“A credit card is a great method for all your monthly payments but may not be the best option for availing of emergency credit," said Anil Pinapala, Founder & CEO, Vivifi India.
The Pros:
> Boost to purchasing power, i.e. the borrower can buy for more than funds available which can be paid in future
> Credit cards often offer reward points on spends. The more you use the more points you collect, which can be redeemed for a statement credit or merchandise, but the ratio of rewards points varies with the type of card and issuer of the card
> Helps create a credit record
> Credit card issuers typically have deals in association with retailers
> Credit cards offer other value-added services such as complimentary airport lounge access, among others
The Cons:
> Leads to overspending and impulsive purchases
> Carrying forward a balance on a credit card is a very expensive form of credit, with finance charges of 23-49% on the unpaid dues
> Impacts your credit score negatively on missed payments
> Credit card generally have annual fees which make it an additional expense
> Delaying payments on credit cards attracts late fees
Anuj Kacker, Co-Founder MoneyTap, said, “Credit cards are flexible and make shopping rewarding for customers if used mindfully. However, it can also be dangerous sometimes, especially if you fail to repay your bill on time. Or you only pay the minimum amount, which leads the unpaid amount to be transferred to the next month along with a huge rate of interest. Also, if you only make minimum payments while shopping impulsively, you will end up creating more debt for yourself, and your credit score might get affected by frequent defaults on payment. Apart from this, there is also a risk of credit card fraud and theft."
