A credit card is a double-edged sword. If used wisely, it can prove to be a great financial tool, but it can heavily affect your financial well-being if misused. If you intend to own a credit card, knowing how to use it wisely will be helpful. Listed below are a few pros and cons of having a credit card. First let’s review some of the pros of a credit cards:
1. Offers convenience
Carrying excess cash while traveling could be stressful and dangerous, and owning a credit card eliminates this stress. Payments can be easily made with a quick swipe of the card.
2. Helps in spreading out purchases
If you wish to buy a product that is expensive, a credit card is a useful payment option. For instance, if you wish to purchase an expensive home appliance, a credit card can help you spread out the expense of such a purchase over several monthly installments. It can be a valuable financial asset in an emergency.
3. Universal acceptance
A credit card scores much higher as compared to a debit card when it comes to worldwide acceptance. If you are traveling overseas, merchants may not always accept debit cards, which makes owning a credit card beneficial.
4. Helps in building and improving credit
If you have no credit or are looking to improve your credit score, a credit card is helpful. If you use your credit card responsibly and make timely repayments, the credit card company will report your payment activity to the credit rating bureaus/agencies, which will help in improving your credit score.
5. Rewards and points
Credit cards offer endless options when it comes to rewards and points. Quite often, credit card companies offer three-month promo periods, wherein spending on a particular category like restaurants helps you earn redeemable points and gift cards. In addition, if you have a co-branded card issued by a gas station or a hotel, you can earn higher rewards.
Apart from these amazing pros, listed below are a few cons of a credit card that also need to be considered while opting to get a card for yourself.
Now let’s look at some cons of owning a credit card:
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1. A tendency to overspend
Using credit cards is quite simple, but this feature tempts customers to use it more often and end up spending more money than required, which could cause a huge dent in their pocket.
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2. The probability of debt
The biggest risk of having a credit card is that you could land up in a huge debt if you are unable to repay the amount. Additionally, companies can also impose additional fees and charges in case you default on payments or exceed the credit limit.
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3. Negative impact on the credit score
Failing to pay your credit card bills would negatively affect your credit rating. It will be difficult for you to apply for credit in the future with a low credit score.
