Why I Need A Credit Card – Advantages vs. Disadvantages

A credit card from VISA, MasterCard, or any other network allows you to pay for purchases or services by borrowing from the credit card company. You then repay by making monthly payments towards the amount borrowed. That is, you do not have to repay the whole borrowed amount in full at one go.

Then there are charge cards, such as the American Express card, that require full payment of the borrowed amount each month.

Either way, the credit card is a very convenient alternative to paying by cash. Essentially a credit card allows you to:

Purchase products or services whenever and wherever you want, without ready cash and paying for them at a later date.
Have the option of paying only a part of the total expenses. The balance amount can be carried forward, with an interest charged.
Withdraw cash whenever, wherever you are, through ATMs and other withdrawal centers.
Enjoy a revolving credit limit without any charges for a limited period (mostly 20 to 50 days)
Transact money of more than one currency, from one country to another.

Other facilities afforded on a credit card include reward points on card usage, insurance cover against air and road accidents, loss of baggage, and so on. All credit cards have built-in safety features like signatures and personal identification numbers. International credit cards you financial flexibility when you travel abroad.

Advantages of a Credit Card:

• They allow you to make purchases on credit without carrying around a lot of cash. This allows you a lot of flexibility.
• They allow accurate record-keeping by consolidating purchases into a single statement.
• They allow convenient remote purchasing – ordering/shopping online or by phone. They allow you to pay for large purchases in small, monthly installments.
• Under certain circumstances, they allow you to withhold payment for merchandise which proves defective.
• They are cheaper for short-term borrowing – interest is only paid on the remaining debt, not the full loan amount.
• Many cards offer additional benefits such as additional insurance cover on purchases, cash back, air miles and discounts on holidays.

Disadvantages of a Credit Card:

• You may become an impulsive buyer and tend to overspend because of the ease of using credit cards. Cards can encourage the purchasing of goods and services you cannot really afford.
• Credit cards are a relatively expensive way of obtaining credit if you don’t use them carefully, especially because of the high interest rates and other costs.
• Lost or stolen cards may result in some unwanted expense and inconvenience.
• The use of a large number of credit cards can get you even further into debt.
• Using a credit card, especially remotely, introduces an element of risk as the card details may fall into the wrong hands resulting in fraudulent purchases on the card. Fraudulent or unauthorized charges may take months to dispute, investigate, and resolve.