(ProsperNews.net) – From a young age, most people are discouraged from using credit cards and told to rely on debit cards and cash instead. Rightfully so, credit cards can encourage poor financial habits in the wrong hands.
On the flip side, credit cards can also be beneficial when used properly and if you take advantage of their perks. In this article, we examine the pros of using credit cards, including the big role they play in making life easier, and the few manageable drawbacks of using them.
Benefits of Using Credit Card
Before using credit cards, understanding their perks is key to benefiting from them long-term. The main benefits of using credit cards are:
Building Credit
Credit card usage is an important factor that the three main credit bureaus use to determine your credit score. If you have a low credit score, using a credit card can gradually help improve your rating, giving you access to better interest rates and loan terms.
Even better, there are numerous credit cards available today that you can take out with a low credit score. Just make sure to make your minimum payments by each due date.
Protection from Fraud
Under the Fair Credit Billing Act, credit cards cardholders are protected from liability for fraudulent purchases made using their credit cards. If your card or card number is stolen and a transaction is done without your authorization, you have zero liability for the unauthorized charges besides a minimum $50 penalty.
Potential to Reduce Debt
Some credit cards offer a welcome bonus for a period of time that allows you to consolidate all your debt using a balance transfer credit card. Okay, maybe not all your debt, but credit card debt and other debts, such as monthly installments and car loans.
For the period the bonus lasts, you’re charged a 0% interest rate on your credit card debt, allowing you to focus on directly paying down your debt as much as possible.
Earning Rewards and Cashbacks
Many credit cards today offer various rewards, from cashback to points and signup bonuses, such as interest-free grace periods. Furthermore, the rewards offered are tailored to normal spending habits, so there is no need to change your lifestyle. For example, if you love traveling, numerous travel credit cards allow you to redeem points for airplane miles, hotel minutes, and restaurant purchases.
Purchasing Protection
Purchases made using a credit card can be returned to a store if they’re defective, poor quality, or damaged. You only need the statement of credit and receipt to get your money back. Credit cards also offer extended warranty periods, especially on long-term-use items such as furniture and electronics.
Ease of Tracking Spending
Credit card issuers provide detailed reports that make tracking your expenditures easier. From these regular reports, you can know where and how you spend money and what you spend it on, even long after you purchase it. You can also automatically track your credit card usage through numerous apps that track spending.
Drawbacks of Credit Card Usage
While credit cards have numerous benefits, they also come with some drawbacks, especially if used irresponsibly. These include:
- High fees and interest rates: Credit cards can charge 20% interest or more, depending on your credit score. If you make a purchase and don’t pay off the debt by the due date, the interest rate will be charged on the balance on top of the principal amount. You also might pay late penalty fees and monthly and annual card servicing fees.
- Temptation to overspend: Since credit card money is actual money in your bank account, you can easily be tempted to overspend within a short period. If you’re undisciplined, you’re likely to fall for the numerous incentives from cardholders that encourage you to spend more.
- Can negatively impact credit score: Due to the temptation of overspending, it’s easy to be caught up in late payments and high balances, which negatively impact your credit score.
- Ever-changing conditions: The conditions for incentives offered on signing up for a credit card may be different that in the fine print. Also, conditions do change from time to time, requiring fresh registration.
The benefits of using a credit card outweigh the drawbacks. Therefore, don’t be afraid to search for the right credit card for you in the market. Just be responsible.
Copyright 2023, ProsperNews.net
