What is a credit card?
A credit card provider gives credit cards. It is used for paying for goods both online and in shops. You can as well use a credit card to withdraw cash from an ATM or get an advance. You can similarly use a credit card to purchase goods without using money from your pocket.
These credit cards have their fair share of advantages and disadvantages. Before we dive into the pros and cons, let us first have a look at how the credit cards work.
How credit cards operate
During the application for a credit card, the applicant gets an opportunity to decide on the credit limit that he or she prefers. Alternatively, the credit card provider may set this limit after carefully analyzing the information that the applicant has provided.
Assessing the Application
When the applicant submits a request for a credit card, the information that is taken into account is type of employment, credit card report of the applicant, minimum income thresholds as well as the applicant’s credit history with the credit card provider. The ability of the applicant to service the credit card depending on their overall financial position is considered.
While purchasing using a credit card, you can either be around in person, online or via a phone. There is a contactless technology that is meant to make purchasing using a credit card to be more efficient.
Transfer of balance is an optional feature on credit cards with you can use to transfer non-Westpac balances on credit cards to a Westpac credit card.
Many credit cards earn you points when you transact using them. These points can be redeemed at designated points for some other goods.
Having considered the operation of credit cards, we can now take a look at the pros and cons of the credit cards.
Just like most things, credit cards have a set of advantages and disadvantages. Having knowledge about these can be helpful in assisting you to choose whether o or no to have the credit cards.
Ease of Purchase as well as Purchase Power
It is easy to buy things using a credit card. If you are the kind of a person who dislikes carrying large amounts of cash around, then credit cards are for you. In most cases, you may find some companies such as hotels, car rental businesses and airlines refusing to accept cash. Having a full credit card, in this case, becomes beneficial.
Making purchases using a credit card is more convenient. You do not need to run up and down in search of an ATM. Neither do you need to have cash on hand. The fact that credit cards are accepted worldwide makes them great for making online purchases.
Faster way of Borrowing
Think of a situation where you want to buy an expensive item but you are unable to fund it entirely. A credit card would be ideal here. if you do not have money at hand or in the bank account, you can buy the item and then have the debt spread over some months.
Protection of the Consumer
As a consumer, paying with a credit card earns you more protection than if you pay using a debit card or cheque or cash. Once you purchase an item whose price ranges between a given values, you get a refund in case something wrong happens. In other words, if the kind of transaction you have made is wrong or if the company goes bust, you will not lose any money. You can swiftly claim it back by going to your credit card provider.
If it happens that someone uses your card fraudulently, your card provider has the obligation of refunding the money. However, if it is recognized that you were negligent, you will not be reimbursed. You should thus make sure you have not written your PIN number at a place that a second party can access it.
Borrow without incurring charges
Some credit cards that will give you 0% periods. What this means is that you get to borrow money, and you will not pay any interest on the loan. All that you will have to do is to clear your balance before the 0% offer gets to an end because you will be charged interest. It is advisable that you begin to pay your debt before the interest charges are imposed on your loan.
You can as well get an extended interest-free period. You get 59 days within which you can repay your credit card loan. Just be sure to pay it within that period to evade the interest. You, therefore, get to manage your cash more efficiently.
Some cards that give you incentives such as loyalty points and cash back that you can spend. You thus make money from your card. The secret to remember is that; pay your bills in full and this advantage will be all for you to grab.
Helps you with Record Keeping
Getting the credit card statements helps you know your expenditure pattern. Some credit cards give you end-year summary which turns out beneficial at the tax time.
The efficiency of using the credit cards brings with it quite some problems.
Can blow your budget
Credit cards have a way of encouraging people to spend money that at times they may not be having. Some of the credits may allow you to pay your loan even past a month. With $ 100, you will find yourself spending $ 500 or even $ 1000. At the time of spending, you get the feeling that it is free money. The interests that you will incur will go way above what you would have expected thus disorganizing your budget plans.
Credit Card Fraud
Just like cash, credit cards also get stolen. They can be taken physically or just a credit card number and then uses it to rack up debts. The remote stealing can be done via a website or phone. Inform your credit card provider immediately you realize a fraud.
High rates of interest and debt increase
The credit will allow you to spend cash even if you do not have it and then repay later on. They give you a period within which you are supposed to pay back. Going past this period earns you enormous interests. You may pay a loan interest of up to 10% which goes way above what you would earn interest on your savings.
Credit cards technology is a great one. However, one needs to be wise in using them so as not to incur some charges that they may end up regretting.