What Are the Advantages and Disadvantages of Using Credit Cards?

I want to make a distinction here between Credit Cards & Debit Cards. Using a credit card can be much riskier than a debit card. Let’s call them both bank cards. Many of the advantages and disadvantages are the same. Credit Cards provide more benefits but also more problems than Debit cards. Use your credit card with caution. Use a credit card differently and sparingly than you use a debit card. Use credit cards responsibly. In this article, I’m going to mention both types of cards.

Here Are Some of the Advantages:

Convenience and Fast Payments

This is true of both sorts of cards. It’s not something that only credit cards offer. It’s much quicker at the checkout to use bank cards; just swipe and enter a PIN, and you’re good to go! No counting out a specific amount, waiting to get change, and they’re generally much cleaner too – a significant consideration during a pandemic.

Easy Access

You can either stand in a line to purchase a ticket of some sort or pay directly by bank-card. I’m thinking of the subway where I live in particular. I can stand in a line or swipe my card at a special turnstile that accepts bank cards.

Fewer Trips to the Bank & Making a Deposit

The only time I’ve been to the bank recently is to replace a bank card. Occasionally I need cash for something, and I can get it at an ATM. Who makes a Credit Card deposit? This seems to belong exclusively to the debit card domain—no standing in line and no paperwork. 

More Shopping Options

This is what I like most about bank cards. It opens up shopping possibilities for me. I live abroad, and surprisingly I can buy some things from America, such as clothes, and they’re not only less expensive, authentic, but better quality. Also, the cost of doing business has declined for merchants; they no longer have to pay rent and utilities. They often don’t even have to pay for storage or handling of their merchandise but can order factory direct without the product physically moving through their hands; they can order directly from the factory and have it shipped directly to the consumer’s home! 

In Times of Crisis

It’s comfortable to know that one has a substantial balance on the card in a time of crisis, whether it’s your crisis or a friend or loved one who is in trouble. Keeping an emergency fund on a card can be a lifesaver, sometimes literally! You can now send cash almost anywhere on the globe! If you have bad or no credit, you can still get an emergency loan.

Consumer Protections

Consumer protections, from PINs, CVV numbers to returns and disputes – bank cards can offer protections that would be very difficult to get quick cash. Fraud is easier to avoid, too, as well as outright theft. If someone steals your card, the thief needs your PIN, and a push of the button can block your card by phone or by the internet. Another perk is purchase protection, which ensures certain aspects of the purchase and the product. 

Credit Score

Build your credit with care. Avoid excessive credit card debt. Lenders reward consumers for good spending behavior. It determines if someone is trustworthy to repay a loan or not. Use credit with care, and you will eventually see it reflected in your credit score.

Establishing a credit history is almost the same as having a good driving record. Just like good driving habits will result in lower insurance premiums, so good credit history will attract better credit card deals. A better credit rating will result in being rewarded with better interest rates. Cheaper Auto Insurance is another area that you will save money on. Good behaviors in one area often lead to the development of good behaviors in other areas. Good credit indicates a good buying and payment history. Auto Insurance is one area where this is especially true.

Record keeping

The days of keeping a checking account record are gone. It was always prone to human error, especially when two people were writing checks on two different checkbooks for one account. Many attribute an NSF check to this. There’s no possibility of this with an automatic record of all purchases that you make. Think of it as a financial record instead. 

Cash-Back Rewards

Making purchases by bank card now entitles the consumer to cash-back rewards, and they can add up to an exceptionally significant sum these days. Often, the customer can choose the areas in which they wish to get cash-back rewards such as; grocery, pharmacy, health, and beauty. Lenders usually post these cash rewards right away.

Travel Rewards

Another of the card rewards, Travel rewards, are a distinct sub-currency of their own nowadays. It’s not unheard of for people to pay for entire airplane tickets using ‘miles’ accumulated or even outright selling them to another person for cash. A rental car is also cheaper with travel rewards. There are also special rates for cell-phones. The advantages of using electronic forms of payment are significant.

Here Are Some of the Disadvantages:

Points

The trick that many credit card programs play is the ones that pay your rewards in “points.” Earn enough points; you can cash them in for gift cards or merchandise or transfer them to other travel rewards programs. The catch is that the value of the points isn’t well defined. The value may be able to be extrapolated, but most of us don’t have time.

Hidden fees!

Especially with credit cards vs. debit cards! Here is a list of standard fees associated with bank cards in general and credit cards specifically.

Annual Fees

This has always confused and perturbed me. Often called a ‘Maintenance fee,’ it is illogical and unreasonable. It basically amounts to paying the bank or credit card company a yearly fee for the privilege of having them charge you more fees. 

Balance Transfer Fees

Be very careful with Balance Transfers. Read the fine print all the way to the bottom. Usually, an institution will offer you a special low rate to consolidate your other Credit Card debt onto their card. Lenders will often list any balance transfer fees near the very end of the TOS (Terms of Service).

Cash Advance Fees

Many credit card companies will let you use your card to borrow funds. The fee for this service is often between 2% and 5% of the amount you borrow. The higher cost is the interest you pay on that particular loan. Companies charge much higher interest for cash advances than they do for purchases; they also start charging it immediately, with no grace period.

Foreign Transaction Charges

This fee is becoming less common nowadays with globalization. Be wary when abroad! Check the fine print of your user agreement to make sure beforehand.

Late Payment Charges

The Card Payment Act of 2009 allows companies to charge a flat $25 fee the first time a payment is late and $35 after that.

Over-Limit Charges

Lenders can initially set over-limit charges in two ways. If you go over your credit card limit or balance for a debit card, merchants can reject the transaction. The Card Payment Act of 2009 requires this by law. However, you can choose to have the card accept the charges for $39. Some people choose to do this rather than face the embarrassment of rejection.

Returned Payment Charges

This type of fee is sure to become a thing of the past for the most part. They are commonly known as NSF (Non-Sufficient Funds). Beware of paying your credit card debt by check. If it bounces, the credit card company AND the bank can both charge you $35 totaling $70.

Overspending

Some argue that even if you always pay your balance in full and never pay a fee, paying with plastic still costs you money. Simply by swiping your card, you automatically spend more than you would by using cash. There are scientific studies that prove this.

Credit Score/Credit Report

A credit score of 700 or above is generally considered good. A score of 800 or higher on the same range is excellent, with most credit scores falling between 600 and 750. Higher scores show better credit decisions and can make creditors more confident that you will repay your future debts as agreed. Lenders use credit scores for mortgage loans, credit card companies, and even car dealerships financing auto purchases to decide whether or not to give you credit, and the terms of the offer (such as the interest rate or down payment) are. They are even used to determine eligibility for apartment renters.

Final Thoughts

The debate is still ongoing. As many practices become obsolete, partly due to new technology, others will undoubtedly take their place. Updating your knowledge from time to time about upcoming trends and technology will always be a wise decision.