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Advantages and disadvantages of credit cards

Advantages and disadvantages of credit cards

Advantages and disadvantages of credit cards

Often, having a credit card is associated with freedom, credibility and financial capacity because it is a line of loan granted by an institution that has reviewed the user's background . However, it is also related to excessive indebtedness, especially if used irresponsibly. Learn the advantages and disadvantages of credit cards

In fact, US citizens can reach a debit balance of nearly $ 7,000 per card ; a figure that is up to twice your monthly income.

That is why, before applying for or using a credit card for the first time, it is important to thoroughly understand its advantages and disadvantages of credit cards . This is the best way to avoid any future setbacks.

Advantages of credit cards

The advantages of credit cards vary depending on the issuing bank. Some of them will give you access to the most luxurious waiting rooms in airports or will allow you to enjoy discounts at affiliated stores and establishments. If you already have one - or are thinking of applying - check the pros of credit cards directly on the issuing bank's website . Now compare its characteristics with those in this list and evaluate if it fits what you are looking for:

1. It is an instant money loan

The credit card is - practically - a type of short-term loan . The main difference with traditional credits is that, instead of waiting for the bank to deposit the money in your checking account, you get it instantly.

2. Sometimes it is an interest-free line of credit

Some banking institutions have attractive promotions to welcome new customers, such as an interest-free credit card for the first three to six months.

3. Invest in goods and pay in the future

If you need to buy an appliance or expensive equipment - such as a reflex camera or an industrial kitchen for your cake shop - you can distribute the final purchase price in different installments . This way, you won't have to shell out a large amount of money in a single day: you can do it in several months.

4. Increase your credit file

Credit card usage and payments directly influence users' financial history, be it for better or for worse. If you use it correctly - and make your payments on time - you will earn points and have a better credit history . This will help you borrow in the future or enjoy a higher credit limit.

5. It is a secure means of payment

At least safer than cash. If you lose your credit card, just call the issuing bank to request its deactivation . In addition, credit cards have protection against fraud, scams and the acquisition of defective products.

6. You will get rewards for using it

One of the pros of credit cards that users enjoy the most are the rewards for using plastic. Paying with your credit card could be an excellent way to accumulate miles to travel to any tourist destination, access discounts, among others.

7. Works abroad

Most credit cards are valid abroad and perform currency conversion automatically. However, you may prefer to review the cost per transaction and what fees apply before using it.

8. Offers extra benefits

Such as passes to the waiting rooms at the airports , travel insurance or free products. There are even some credit cards that have alliances with businesses and establishments that will give you discounts for paying with plastic.

Cons of credit cards

After touching on the advantages of the credit card, it's time to talk about its disadvantages. The cons of credit cards aren't as many as their benefits, but they could ruin your financial record overnight. That is why it is important that you review them and analyze if the risk is worth it.

1. It could damage your credit history

Remember that a credit card can raise your credit score? The truth is that it can also damage it. If you do not pay the monthly payments on the card on time and do not catch up quickly, all the points you have earned would be at risk.

2. Converting it to cash is expensive

There are ways to convert your credit card into cash, like withdrawing money from an ATM . What is the problem? That the cash advance is followed by a fee of 3% of the amount withdrawn and an interest rate that varies between 18% and 22%.

3. Payment of annual maintenance fees

Not all credit cards require an annual fee, but there are many that do. Annual fees depend on the issuing bank and are usually around US $ 25 .

4. Charges to pay in cash

Some companies increase - between 0.5% and 5% - the value of a product or service when paying with a credit card. Not all stores do, but some of them do.

5. Payment of interest

This could be one of the main disadvantages of the credit card . While having an instant loan is attractive, it is followed by an interest rate that, in some cases, can be as high as 29%.

6. They are tempting and dangerous

Especially on sale days. The possibility of having more money than you actually have, could make you fall into the temptation of spending more than the account and accumulating more debt than you can pay .

So is having a credit card a good thing or a bad thing?

The usefulness of a credit card depends on many factors, from the conditions of the issuing bank to the monthly income of the users. Therefore, having a credit card is neither good nor bad. It can be useful or a complete failure. That will depend on how you use it.

The best thing you can do to support your finances is to use it with caution and look for a credit card with low interest rates, rewards, and no maintenance fees. Try not to buy with extra surcharges and check the terms and conditions before going through a PoS abroad.

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