Credit Cards have long been an instrument for people to use as an alternative to cash for general purchases and the rewards and costs that come embedded need to be understood thoroughly.
At the onset, one needs to be informed that a credit card comes embedded with its rewards and costs and the conveniences far outweigh the hazards. The demerits of a credit card can be avoided provided the person using them is aware that credit cards come with the following disadvantages.
Disadvantages of Credit Cards
- “Minimum charges due” is the biggest deceit to fall for, in the monthly bill.
- Issuers thrive on credit card hidden details like delayed payment fees, credit card fees, credit card charges-monthly and annually, renewal fees, and processing fees are just the tip of the iceberg.
- You can know about the hidden charges on the credit cards provided you call the issuer and jot them down or check the website. This varies among card companies.
- Repeatedly missing a card payment date could attract huge penalties, a reduction in credit limit, and a negative effect on your credit score.
- Extremely high rates of interest on dues that on being carried forward are levied interest on the total. The average is 3% per month, which means it is 36% annually.
- Credit card frauds are common online and to recover the dues the card companies use horrendous methods which include public shaming.
- Credit card companies keep you in the dark about what you exactly owe, as the revolving credit method is used. This will always leverage your spending.
- Nothing comes for “Free” and so do credit cards. Read or find out about hidden charges on a credit card that are not overtly specified.
Advantages of Credit Cards
- Easy access to very good credit amounts that you can spend without affecting your bank balance.
- A credit card helps to build your creditworthiness allowing you to get bigger loans easily from banks in the future.
- For big value purchases, you get an automatic EMI facility through a credit card which helps you to defer payment and receive discounts without affecting your bank balance.
- There are huge rewards and incentives from various high-value outlets that you can enjoy through a credit card. From cashback to air miles the offers are endless on savings and enjoyment.
- Short-term credit with no interest is offered by all credit cards, This is when you have been paying your bills on time and in full.
- Recording your expenses automatically you can refer to every expense if required through a credit card. This helps in planning your expenses and also planning your taxes.
Proper use of Credit Cards.
- Always read the fine print and constantly keep track of your credit card issuer about small additions or charges so you are aware.
- Spend within your practical limits. Avoid the “I will pay back one-day” attitude and pay back in full and make sure your dues are zero at the time of “payment due date”.
- Don’t pay for your daily purchases from your credit card so you know what you are spending through your credit card.
- Keep a target of a 40% credit limit for emergencies and keep checking your exact credit limit.
- Remember to choose the option of EMI for bulk amount purchases, this will prevent high interest on your outstanding.
- Don’t indulge in whimsical purchases and purchase what is necessary. Check what can be bought effectively as certain services attract high interest eg. “cash withdrawal through credit card”.
- Never miss the “due date” as this attracts a huge fine and higher charges.
- Discuss with the credit card issuer if you can’t pay back very high dues. There are plenty of plans available you can be made aware of only if you discuss them. Ensure you don’t get into this debt trap situation again.
Clarification of Doubts about Credit Cards.
- Frequent checking of credit card “limit” and ensuring it doesn’t go more than 40% of your credit limit.
- There are protections on your credit card like “insurance cover” if it is lost, stolen, or damaged. Find out and be aware.
- There is an automatic “EMI” facility on your credit card. Use it to make a bulk amount purchase. Paying through the EMI facility is cheaper than taking a loan.
- Understand the “Minimum Amount Due” factor. Users mistake it for “amount due” whereas this is what the credit card company wants you to pay so that you can continue to use the credit facility.
- There are credit-free periods that a credit card company extends. Know when it is available and use “free credit”. This is given to you if you always pay your full dues within the payment date.
- There is a “billing cycle” which you need to thoroughly understand. It can be the 20th of every month. Many people don’t know that expenses made after the billing date reflect in the following month’s bill. You might think you have made the full bill payment and tuck away your credit card, but realize after a few days that you have more dues and you didn’t plan for it. Constantly check your “full outstanding”.
- Credit scores are negatively affected if you don’t pay on time. So “pay on time” for good credit scores and “pay in full” for peace of mind.
- Responsible usage of credit cards is good for you but getting into credit card debt is very easy if you aren’t careful.
- You can withdraw cash from your credit card, but huge interest is levied. Find out full details before indulging in cash withdrawal.
Charges on your credit card you should know about.
- Additional charges: these charges are levied which you are not told about openly.
- Annual Maintenance Charge may be free the first year but will be levied the following year.
- Interest charges for what is due are very high (about 36% per year), so please pay in full to avoid recurring interest charges.
- GST is applicable to all transactions.
- Late payment charges are high and you should never skip your due date.
- Overdraft charges are levied for crossing the limit. Make sure this is never done.
- Foreign transaction charges are very high, find out before using your card in a different country.
- Paying for petrol or diesel or train tickets etc have additional charges, know them and avoid them.
- Cheque bouncing charges are levied by the credit card. This is apart from your bank charges.
- Charges are levied if you lose your card.
- Withdrawing cash through your card has high charges, especially abroad. Know them.
Credit Cards have their share of advantages that can be used to their optimum levels by the users. One needs to be very careful about how to use them effectively to further one’s business or credit score. They should certainly never be used to gratify personal egos. Apply now with Ruloans here: https://www.ruloans.com/credit-card.htm