Must know credit card benefits and drawbacks

Cynthia Stewart
May 7, 2007
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Simply speaking, credit cards are inevitable in today's economy. It is difficult to find a person who can survive without credit cards. The variety of financial activities has prompted banking institutions to offer wide range of credit cards. Applying for credit card becomes lot more easier if we are familiar with the benefits and drawbacks of owning a credit card. This article takes an incisive look at the benefits and drawbacks of credit cards.

The first benefit that comes with credit cards is absence of cash. No need to carry wallets stuffed up with cash, carry plastic instead. It is possible to shop with them, buy services, pay for dinner, buy things online or even withdraw cash from banks ATM's. The modern day security methods implemented with credit cards make them one of the most secure methods of carrying financial transaction. Coupled with fraud protection, insurance benefits and various other value adds they offer better service. The reward programs and tie-ups with specialty stores provide lots of savings while you spend with your credit card. Some companies even offer cashback. It means you can get some percentage of cash back when you spend a certain amount with the credit card.

Judicious use of credit card helps in building the credit history of a person. The way you repay your credit card debt, is reflected in your credit report and will help you get good loans at better terms in future.

With all these benefits, credit cards are not without certain drawbacks. These drawbacks do not come by default with any credit card, but improper use of any credit card can cause a lot of financial difficulties. Basically, credit card allows you to pay for things even when you don't have any money. It is a kind of credit which has to be repaid with interest. The credit card issuer gives you this credit limit based on your credit history. So, all the money a person spends with a credit card is basically a loan. Problem occur when the repayment of this loan is delayed, missed, or defaulted. This incurs a penalty, late payment charges, and increased interest rates. Continuous defaults on this front can lead to large volumes of credit card debt, which will can have serious effect on a person's credit history. Some people think that credit cards are good means to withdraw cash from ATM's when needed. This is a very wrong assumption and is the major cause of credit card debt. The credit card companies charge huge interest rates when a person withdraws cash using credit cards. They also charge some penalty for this.

The benefits of having a credit cards are numerous and can't be simply given up because they have drawbacks. Again, if you understand that credit card money is just like loan things would be better. If you intent to wipe your credit card balance clean every month, it will be very good for you else the balance will have interest charged on it and will have all the consequences that come with a loan.