Everything You Need To Know About The Pros And Cons of Credit Cards

Owning a credit card is in present times a sort of status symbol and you find people maintaining almost two inside their wallets. Often it is asked by those who do not have one and are thinking about keeping one that what is the big deal about it? Using plastic money has transformed the realm of finance and as we head towards digitisation, Credit card has become an integral part of your daily existence and is an amazing tool if utilized with caution otherwise it can dent a hole in the pocket if not repaid on time. 

Let us understand the pros and cons of credit cards that can be useful in taking informed decisions on their use and getting financial success. 

Pros of Using Credit Card

You can certainly go ahead with owning a credit card for these reasons:

1. Builds A Positive Credit History

Credit cards can be effective in building a positive credit history and grows your purchasing power. Making use of your credit card provides you greater flexibility during payments. Keeping an excellent financial history helps in building a favourable credit score that makes you suitable for receiving the benefits of various financial goods like mortgages and loans.

When you regularly utilize a credit card, you can accumulate few points on your every purchase. These points can afterwards be redeemed when you clear your travel payments or on different e-commerce platforms. 

2. Purchase On Credit

An appealing factor of a credit card is its credit limit given to the cardholder. This makes it easy to purchase any item within that restriction and pay afterwards. Your budget would not be affected for the month, when you buy high value items on credit. Among the prime advantages of credit card is that it lets you change the entire purchase amount into low-priced EMI’s so that you can conveniently repay it over a time period. This has been helpful in transforming your shopping experience. 

3. Widely Accepted Payment Method

You can journey anywhere, with no need to carry enough money when you have a credit card. Considered as a widely accepted payment method, it can be used to pay almost anything. This card permits the cardholder to purchase the essential items without any requirement for instant cash outflow. This has made it a great choice for online shopping. Your credit card entitles you to shop on any site globally and receive your desired products right at your doorstep. A major perk of having a credit card is the way it creates an opportunity for exciting deals and offers. Many credit cards are a constituent of a loyalty program. In case you carry out a minimum expenditure, you can receive reward points and those are augmented into your account. You can subsequently redeem the collected reward points for air miles, gifts or for various purchases. 

4. Safeguards Against Defective Products And Fake Transactions

Did you go through a bitter shopping experience online? You bought a product with high hopes, only to be let down by a defective product. 

When you make payment using a mobile wallet or debit card, you get no leverage vis-à-vis the vendor since the amount is immediately debited out of your account. Additionally, when you make payment using a credit card, you get the opportunity to avail the payment reversal option. You can request your credit card issuer to cancel the payment, mentioning the faulty or damaged product. 

5. Paying For Big-Ticket Online Purchases With Small EMIs

Your credit card makes it convenient to pay for hefty online purchases in easy EMIs. If you want to buy designer furniture’s, and lack enough funds to buy it instantly. You can operate your card to finish the online purchase and make payments as EMIs.

Leading online retailers like Flipkart, and Amazon provide chargeless EMI options for users of credit cards. No-cost EMI indicates you need not make any interest payments on the bargain. You must select the credit card EMI choice when you check out to receive the benefits of this service. Select your desired EMI and choose the tenure. The amount of EMI will be withdrawn from your credit card account for the rest of the tenure. 

6. Endless Reward Points

Credit cards normally provide one out of the three reward formats: cash back, air miles, or points. Most of the cash-back cards allow you to earn some cash percentage on your purchase. For instance, HDFC Bank Money Back Credit Card offers you 2 reward points on every expenditure of Rs. 150 and 4 reward points for every expenditure of Rs. 150 on online purchase. Citi Cash Back Credit Card provides cashback on booking of movie ticket, payments of telephone bill, and all utility bill payments. 

These cards bring reward points when used. The total reward points acquired is based on the kind of credit card you possess and the category of purchase. Like for example, IDFC First Bank credit cards provide unrestricted and never-finishing reward points, which can be easily redeemed. The HDFC Diners Club Black credit card provides 5 reward points for each Rs. 150 spent on it. Whereas, Standard Chartered Ultimate credit card offers 5 reward points per Rs. 150 spent.   

When spending for reward programs, analyse your purchasing habits. If you indulge in plenty of online purchasing, a card that provides adequate retail discounts will be more relevant compared to one that provides discounted gasoline or airline miles. 

7. Augments Your Savings While Shopping Online

Along with the loyalty points gained, your card also provides different perks when you shop online. For example, Swiggy, BookMyShow, Lenskart, Ola, Zomato and different online marketplaces provide additional rebates after you finish the shopping utilizing a credit card. All this helps to augment your savings when you buy online. 

In addition to immediate rebates and reward points, these cards also extend cashback for shopping online. The concept behind cashback is clear- utilize the card to make payments for your online shopping and a certain percentage of the deal is discounted into your credit card account by way of cashback. This helps in extra savings in addition to other perks. 

8. Offer Insurance Coverage

You receive coverage for personal accident along with extensive travel insurance and this features as one of the prime advantages of credit cards which is amazing. Few of the little-known advantages of insurance availed using credit cards are accidental death wherein the credit insurance forgoes all the outstanding balances to the tune of Rs. 50,000 on your credit card. 

You can also claim rental car insurance so long as the car rental has been delivered utilizing a credit card. Moreover, the personal accident insurance plan provided by credit cards can be helpful in claiming a sum between 2 to 4 lakhs, in case of death or hurt caused by road accidents. Insurance claims can also be made for air accidents. But you need to know that the amount of coverage varies based on the kind of credit card and their issuer. 

9. Immense Travel Benefits

The application of credit cards for travel makes them significant. Travel credit cards present accelerated rewards on travel, domestic and global access of airport lounges, travel vouchers from a travel site or an airline on arriving at a spending milestone, air mile earnings and co-branded perks. For instance, SBI has started cards in partnership with Air India, while ICICI Bank provides credit cards co-branded with the leading online travel brand MakeMyTrip. 

HDFC Bank Infinia Metal Edition credit card offers unrestricted lounge access, exclusive benefits at Marriott hotels and preferential access to global airport lounges. IDFC FIRST Bank cards give you airport and railway station lounge access and preferential check-in. In addition, you can also avail food discounts across 280 restaurants.    

Cons of Using Credit Card 

Every good payment mode also has some downsides. Some of the drawbacks associated with credit card are as follows:

1. High Rate Of Interest

The rate of interest on the unpaid sum can rise when you use credit cards. It is much more compared to personal loans and can climb up till 50% per annum (APR or Annual Percentage Rate). Therefore, if you miss your bill payment, you will be liable to pay enough as interest rate. Many credit cards entail a high rate of interest which can be costly in case you neglect the balance payment in full every month. Besides, the moment you take a loan on the credit card or delay in repaying the balance, you will be faced with high interest charges – generally up to 24% to 36% annually. So, the rate of interest following the interest-free duration are extremely high and if you tend to miss the full payment every month, you will go through high interest payment with an average rate of 3.2% per month. 

2. Leads To Overspending

As there is no need for immediate payment, you spending can exceed your paying obligations. For instance, you may purchase a washing machine, 43” TV, and a fridge along with the washing machine. This is a natural human instinct, which can be an issue, specially when you buy online using a credit card. 

A major flaw with credit cards is their enticement factor. Being very convenient to use, they make overspending simple even when you do not have enough money. Though it may appear as “free money” during the transaction, you must deposit it – and the more you delay, you owe more money, as the interest builds up. 

3. Has Hidden Charges

Nothing comes free and so with credit cards too. Also, in the case of “lifetime free credit cards” associated charges exist which will be applied under specific conditions. Therefore, if you do not know the specifics, you pay additional. Having some knowledge of the charges can be beneficial in knowing your credit report and fees which includes annual fee, joining charges, fee for late payment, processing fee or renewal charges.

4. Fraudulent Usage

Same as cash, at times credit cards are also subject to theft or the number can be misused from a site, a receipt or across the phone. It can be used to fulfil debts, but the positives are that if you find out that your credit card or number is robbed and you inform it instantly to your providers of credit card, you will not be liable for any shopping carried out by the stealer of the credit card. 

5. Lowering Of Credit Score

If you are keeping considerable credit card balances and do not make payments every month, the credit score stands reduced. Retaining balance at or nearest to the utmost credit available to you can affect your credit score negatively.  

6. Acquiring Multiple Cards

The enticement to possess several credit card accounts results in failing to keep sight of deadlines and payment information. This can work adversely because it can result in a misleading perception of security. It can also make you transfer accounts to latest providers and vendors offering lower interest. All this can result in rising payments when there are late payments. 

Closing Thoughts

Essentially, the credit card is a versatile tool if used with caution and helps you more than harming you. If you repay at the right time, and completely every month, all is well. If not, the piled-up interest will make you eventually spend more. Knowing these positives and negatives of credit cards can be useful in arriving at well-informed decisions on their proper use in present as well as later. Using them responsibly will result in paying a lesser sum for your loans, receive rewards, loyalty points, cashbacks, and remain financially de-stressed. If you are aware of using a credit card sensibly, transfer a lot of your shopping to your credit card and use the debit card only for ATM access. If this is done, the mix of rewards, protection of buyers, and the benefit of cash-in-hand with keep you ahead of debit card users or those who pay with cash or cheques. 

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