The Advantages and Disadvantages Of Using A Credit Card

In today’s ever-changing financial landscape, one form of payment remains increasingly popular. Credit cards. It seems like nearly every day, consumers are bombarded with TV commercials, Internet ads, emails, text messages and traditional mail containing offers for new credit cards. A credit card is a form of payment allowing consumers to buy products or pay for services without existing cash funds. As great as this may sound on the surface, it is important to understand credit cards are not all good, but credit cards are also not all bad. With that being said, this post is intended to help current and future credit borrowers identify the primary advantages and disadvantages of making purchases with a credit card in order to help them make more informed consumer decisions along the way.

The primary advantage of using a credit card as a form of payment is the convenience it provides. It allows buyers to make a necessary or desired purchase at any time regardless of whether or not cash is available. That convenience is further enhanced due to the ability to make monthly or other periodic payments to spread the cost out over time rather than paying for everything all at once. This particularly comes in handy when a person encounters unexpected expenses such as the cost of replacing old appliances, last-minute trips, a new car, home improvement/repairs, etc. While it would be ideal to pay for these kinds of things with cash, the reality is this is not always an option. As such, a credit card conveniently bridges the gap between a lack of available funds and the need/desire to make an immediate purchase.

Another key advantage of using a credit card to make a purchase is rewards. With all the different credit cards and credit card issuers out there, there are also several different kinds of rewards and perks that come along with making credit card purchases. These include: general discounts, special pricing, cashback/rebates, gift cards, reward points, frequent flyer rewards and more. The more a credit card is used, the more these points and rewards will pile up. This is especially beneficial to consumers who use credit cards to make major purchases as well as those who are loyal to specific stores, banks, airlines, and other entities.

Buyer and fraud protection is also a key benefit of using a credit card. This is because when an unauthorized payment is made using a credit card, the cardholder is not actually losing out on money. Also, most credit card companies do not hold their consumers accountable for fraudulent purchases made without their consent. Credit cards also keep buyers safe by using a unique card number for identification rather than providing personal banking details.

One last key advantage of using a credit card to make purchases is for the purpose of building credit. In many cases, higher credit scores lead to higher credit limits, lower interest rates and greater access to different types of credit cards and rewards. For this reason, using credit cards to build credit is beneficial to first time/newer credit card users looking to establish a credit score as well as lon-time credit card holders looking to improve their scores.

When it comes to the disadvantages of using a credit card, high interest rates and fees are the primary drawback. The interest rate typically refers to the annual percentage rate (APR), which is the amount credit lenders charge borrowers in exchange for providing them with credit. In addition to high interest rates, creditors often charge transaction fees, monthly fees, annual fees, late fees and other miscellaneous charges whenever a credit card is used. Accumulating interest and fees on credit cards often leads to costs that far exceed the original purchase price, and this effectively offsets the convenience of using a credit card.

Another primary drawback of using credit cards is how quickly debt can accumulate. In addition to the high interest rates and fees previously mentioned, excessive use of a credit card increases the risk of accumulating debt as well as putting longtime borrowers further in debt. Also, the inability to make timely credit card payments leads to late fees which only add to the problem.

Another key disadvantage of using credit cards is doing so can lead to bad purchasing habits. For many borrowers, owning and using a credit card can create a false sense of financial security. This can lead to unnecessary purchases, excessive card swiping and potentially insurmountable debt. This can be especially problematic for cardholders with higher credit limits.

One final disadvantage of using a credit card is how quickly and easily a credit score can be ruined. No matter how high a person‘s credit score is or how long it takes to build their credit, one bad purchase or late/missed payment can have severe consequences on a persons overall credit score. In other words, it’s often a lot easier to damage a credit score than it is to build or repair it. This is problematic for a lot of borrowers, because a couple of points lost off a credit score can be the difference between being able to afford that new house or being able to avoid debt accumulation in the first place.

In conclusion, using a credit card has a number of advantages and disadvantages. It can be a convenient, timely form of payment, come with several rewards and bonuses, keep buyers safe and protected from fraud and can be a valuable source of credit building for new and experienced borrowers alike. In contrast, using a credit card can be risky due to high interest rates and fees, debt accumulation, bad purchasing habits and credit card score damage. At the end of the day, understanding and analyzing each of these advantages and disadvantages should help potential credit borrowers make informed decisions on when or if a credit card is right for them.