Credit Card - Advantages And Disadvantages

The Use of Credit Card

The advancement of technology has influenced humanity in all aspects of life that governs almost all acts of man. There is now the use of plastic card as money for purchasing goods or service online and offline as compared to cash or gold a few decades ago. Merchants who want to sell their products now accept funds through debit cards and credit cards easily. But to do this he needs machines. This trader must also have an account at a bank. Businessmen who do not work with a merchant account cannot accept money from plastic or any other form of debit card and credit. A merchant who wishes to provide these facilities is to contact a trader dependable and trustworthy service provider account.

Like almost everything that exist, there are advantages and disadvantages to credit cards. Knowing some of these can help you decide if you do or do not want to use credit cards. Here i list some of the advantages and disadvantages.

Advantages;

• Purchase Power, Ease of Purchase and Ease of Carrying Cash - Credit cards can make it easier to buy things. If you don't like to carry large amounts of cash with you or if a company doesn't accept cash purchases (for example most airlines, hotels, and car rental agencies), putting purchases on a credit card can make buying things easier and faster.

• Emergencies - Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget (or money you don't have!), sometimes emergencies (such as your car breaking down or flood or fire) may lead to a large purchase (like the need for a rental car or a motel room for several nights.)

• Discount on Credit Card Purchase - In addition to the benefits listed above, some credit cards offer additional benefits, such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance.) While most of these benefits are meant to encourage you to charge more money on your credit card (remember, credit card companies start making their money when you can't afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.
• Protection against theft - Unlike cash when you loose your credit card as a result of lossing your wallet that contains your credit card, you can immediately report the issue to your card company so that purchases are not charge.

 There are several things you can do to prevent credit card fraud:

• If you lose your card or wallet, report it to your credit card company immediately.
• Don't loan your credit card to anyone and only give out your credit card information to trusted companies or Websites.
• Check your statement closely at the end of each month to make sure all charges are yours. 

Disadvantages

•  Blowing Your Budget -- The biggest disadvantage of credit cards is that they encourage people to spend money that they don't have. Most credit cards do not require you to pay off your balance each month, so even if you only have $100, you may be able to spend up to $500 or $1,000 on your credit card. While this may seem like 'free money' at the time of spending, you will have to pay it off and that's where it gets pretty ugly to some people -- the longer you wait, the more money you will owe since credit card companies charge you interest each month on the money you have borrowed. 

• High Interest Rates and Increased Debt -- Credit card companies charge you an enormous amount of interest on each balance that you don't pay off at the end of each month. This is how they make their money and this is how most people in the United States get into debt (and even bankruptcy.) Consider this: If you have a $100 in savings, most banks will give you at the most 2.0 to 2.5% interest on your money over the course of the year. This means you earn $2.00 - $2.50 a year on your $100 savings. Most credit cards charge you up to 10 times that amount of interest on balances. This means that if you have $100 balance that you don't pay off, you will be charged 20-25% interest on that $100. This means that you owe almost $30 interest (plus the original $100) at the end of the year. A good way to look at this is in comparison to what you would earn in interest from a bank or owe in interest to a bank loan: Savings accounts may pay you around 2% interest; if you have a loan from a bank you may pay them around 10% interest (5 times as much as you earn off your savings); if you owe money to a credit card company, you may pay them around 20% interest (10 times as much as you earn off your savings.) Looks like a rip off but you bought the deal didn't you!

• Credit Card Fraud - Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number (from a receipt, over the phone, or from a Website) and use your card to rack up debts. The good news is that, unlike cash, if you realize your credit card or number has been stolen and you report it to your credit card company immediately, you will not be charged for any purchases that someone else has made. Even if you don't realize your credit card number has been stolen (sometimes you might not know until you receive your monthly statement), most credit card companies don't charge you or only charge a small fee, like $25 or $50, even if the thief has charged thousands of dollars to your card.

Credit cards can make life easier and be a great tool, but if they aren't used wisely they can become a huge financial burden. If you do decide to use credit cards, remember these simple rules:

• Keep track of all your purchases.
• Don't spend outside your budget.
• Pay off your balance on all of your credit cards at the end of each month.
• Don't loan your credit or give out your credit card information to anyone but reliable companies.