A credit card is one of those things that make life easier, but they can also make life worse, if unused properly. The following are the perks and perils of having, and using your credit card.
Buy now, pay later.
Through a credit card, you can buy something even if you forgot your cash at home or if you have a few days left to receive your pay cheque. This can be very helpful if you have urgent, out-of-pocket expenses that you can surely reimburse in no time.
However, keep in mind that being able to buy something right now through credit is not the same as being able to afford it. The golden rule to not acquire bad debt is to live within your means. Your credit card is not the extension of your wallet, so make sure that you charge only what you can truly afford.
Helps build your credit.
One of the keys to a healthy credit rating is to have the right mix of different types of credit in your history, including both instalment and revolving types of debt. A credit card is the most common type of revolving credit and possibly the easiest to apply. Be careful though, because being late on your credit card bills can do more harm than good on your overall credit standing.
Cash back and other rewards.
An exciting perk with using your credit cards is the opportunity to earn rewards from doing so. Most credit card companies entice customers through their rewards program in the form of freebies, cash backs, mileage, etc. If you’re going to buy something with cash, you can easily just use your card and earn you those points.
It is not any safer than cash.
You may think that by bringing your card instead of cash makes you safer from criminals, but it’s a far cry from reality. In fact, it may even be more dangerous. Why? Because if you lose your cash, you only lose your cash, but if you lose your credit card, you run the risk of someone using this without your permission or worse, steal your identity. While you can report the loss to your issuer, there are cases when cards are stolen unnoticed, which can get you into huge trouble.
A credit card can have very high interest rates, especially if you are a new credit cardholder or you have damaged your credit rating in the past. The effects of these interest rates are more pronounced when you make a credit card cash advance, and the worst thing about it is that you are not even given a grace period.
You run the risk of overspending.
This probably is the biggest disadvantage with using a credit card. With all the things that you can purchase through credit (which is basically everything), and with all the special deals and promos, it gets even easier to spend a little here and there, and the next thing you know you already went past your budget. You may not feel its immediate effect, but when your debts exceed your income consistently, you will suffer.