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Credit card is a very supportive financial tool, but while on the one hand, it gives you many facilities, on the other hand, it also gives you many challenges. This impacts your individual financial health to a great extent. Due to high interest rates, credit cards are sometimes compared with the unsecured payday loans. However, if used wisely, both are saviours during financial emergencies.

Let us know the advantages and disadvantages of credit cards. This will help you in making informed decisions regarding your credit card usage. At the same time, you can improve your financial practice.

Pros of credit cards

Let’s first understand the advantages of credit cards and learn how they can have a positive impact on your finances.

• Convenience and Accessibility. The first advantage of a credit card is that it makes your daily transactions convenient. It makes online or in-store purchasing smooth. Because of this, you do not have to carry a large amount of cash.

Whether you are purchasing a cup of coffee or your honeymoon package, a credit card makes transactions very easy to streamline. Not only this, credit cards are the most accepted form of payment across the world. Hence, for international transactions, global travellers can avail of the handy payment facility through credit cards.

• Another benefit is building a credit history. If you use credit cards responsibly, it helps build your credit history. If you want to qualify for mortgage and other types of credit in the future, this credit score improvement is crucial.

However, all this depends on how you manage your credit card. By paying your bills on time and keeping your credit card usage low, you can easily increase your credit score. In return, better loan terms are available to you. You can invest funds at lower interest rates.

• Many types of rewards and benefits are also available with credit cards. With this, you can collect cashback, travel facilities, and points. Many types of rewards are available for those who travel frequently or shop frequently.

Some credit cards provide savings on specific categories like groceries, gas, and dining. Due to exclusive offers, bonuses, and discounts, the use of credit cards is also quite beneficial. Some credit cards also provide a sign-up bonus, which makes your purchasing even more beneficial.

For those who frequently shop, a credit card company provides many types of offers. This makes your future shopping much more affordable.

• The next point is security and fraud protection. Credit cards have a built-in fraud protection system. This gives you peace of mind while using them. Even if you make an unauthorized transaction by mistake, the credit card companies save your hard-earned money.

In the event of your credit card being stolen, the credit card company can immediately block your credit card. However, for this, it is important for you to provide information on time. The security of a credit card is stronger than that of a debit card in many ways.

• The next advantage is emergency funding. A credit card always acts as a last-minute saviour for you. For example, if you need money after a sudden car breakdown, a credit card can immediately bear your repair costs.

It is important to note here that the credit card should be used only for financial emergencies or essential expenses. If you start using a credit card for every small or big transaction, it creates tension in your financial life.

It is wise to use a credit card for any financial emergency. But if you use a credit card every time you buy groceries, your credit card repayments will increase manifold.

Cons of credit cards

Now, let’s discuss the disadvantages of credit cards that you should be aware of.

• A high rate of interest is also one of the biggest drawbacks of credit default. Due to this high rate, you may become a victim of substantial debt.

If you do not pay your installments on time, then the interest rate gets accumulated along with your principal amount. In some credit cards, this rate of interest can be up to 20%. Due to this, if you have not paid back even a small balance, it can convert into a large amount.

• Another disadvantage is the risk of debt accumulation. It is very easy to use credit cards, which provokes the habit of overspending. So, if you do not practice disciplined financial behaviour, debt accumulation can take shape in the future.

While purchasing through a credit card, the cardholder is able to purchase beyond his financial limit. Due to this, controlling oneself and spending wisely seems to be a big challenge. Often, people shop using credit cards just to get new rewards and benefits.

But if these expenses are not paid back on time, then a dead trap situation can arise, which gives you long-term financial stress.

• Another issue is the negative impact on credit scores. Needless to say, whenever the credit card installment is delayed or skipped, the size of the pending obligation increases due to the interest rate.

This has a direct impact on your credit score. Any kind of late payment skipped payment, or high credit utilization rate degrades your credit rating aggressively. Any kind of high-interest financial product should be paid on time. Whether it is credit cards or unsecured payday loans, both demand timely repayments.

Apart from this, small mistakes like paying your bills or credit card bills late by a few days can cause long-lasting damage to your credit score. This also affects your financial health. And it will have a negative impact on future opportunities.

• The next point is about annual fees. Some credit cards charge annual fees. This fee is charged against the privilege that the credit cardholder gets while using the card. Although this fee can be compensated through the purse or rewards given by the company, it is an unnecessary expense. Especially for those cardholders who do not use the cards fully, it is like a loss.

For those cardholders who have not fully used the benefits and rewards, annual fees are an extra expense. For example, those premium cards that offer versatile travel rewards also have high annual fees.

But such cards are not suitable for those who travel less. Therefore, it is important that while deducting the annual fee, you first consider its usage, rewards, and benefits from the very beginning. Drive a practical conclusion.

• The next disadvantage is the temptation to spend beyond one’s means. Credit cards. Promote irresponsible financial behaviour and impulsive spending in many ways.

It gives even a consumer with a small salary the capacity to spend more than his financial limit. In such a situation, you get detached from reality and fall prey to mindless spending. It provides you with a false sense of financial security by giving you instant relief.

Because of this, you start buying things that you do not need. This results in unnecessary documentation. That is why it is said that budgeting is necessary while using a credit card. Also, credit cards should be used only for actual and real financial concerns. Using a credit card for every small or big shopping or leisure negatively impacts your financial health.

Conclusion

It is easier to understand now that your credit card demands a rational approach. Use it, but use it well. Smart and sensible use of credit cards can literally strengthen your financial life.

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