Advantages and Disadvantages of Credit Cards

Credit Card Advantages

A more cost effective form of short term borrowing. A short term personal loan can be expensive. With a credit card you only pay interest on the outstanding balance. If you pay off the balance fairly quickly this will not amount to much interest.

Credit cards give you a period of Interest Free credit, usually up to 56 days.

They can help you meet any sudden, unexpected expense.

Credit cards give you flexible repayments. You can pay a small amount in an month or pay off the entire balance, depending on your circumstances. And the minimum amount is small, usually between 3% and 5% of the balance. And there are no early redemption penalties. If you paid off a personal loan early there would be a penalty.

Extra benefits such as cash back. Some card issuers will give you back 1% of your monthly transactions. This is usually held for you and then credited to your card balance once a year. Free insurance cover on some items, or free air miles are other benefits on offer.

Telephone and Internet Shopping. Credit cards are a convenient and safe way to shop online. You are also covered against fraudulent use of your credit card. And they are easy and convenient to use abroad.

Credit Card Disadvantages

Easier to build up large debt than with other forms of borrowing. Because credit cards are so easy and convenient to use it is easy to build up debt without realising it. It does not seem like spending real money when using a credit card so discipline and restraint are needed.

High interest charges if you use a credit card to withdraw cash.

The outstanding balance can quickly escalate if you only pay off the minimum amount each month. Credit cards should be seen as short term borrowing. Always pay off more than the minimum if possible, and as much as you can afford each month. If you have an outstanding balance for an extended period on a credit card it will work out more expensive than if you had arranged a personal loan.

Learn more about Credit Cards, and how and where to get them in Get a Credit Card

Credit Card Resources

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