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What are the Advantages and Disadvantages of Credit Cards?

Like other financial tools and services, credit cards come with many advantages and disadvantages. It’s critical to understand the details before you sign up for any credit card. Otherwise, you may end up with a card that traps you instead of setting you free.

Advantages

  • Purchasing Power: Credit Cards enable users to make big ticket purchases they might not otherwise be able to afford.
  • Rewards: Many cards offer rewards programs that will accrue points, discounts, or other benefits like frequent flyer miles.
  • Convenience: Credit cards reduce the need to carry cash. Most retailers accept credit cards and they are pretty much required for online purchases.
  • Trackability: The electronic record keeping that comes with credit cards make it easy to track your spending and identify fraud.
  • Use during an emergency: There are times when money is the simple solution to an emergency. If you get hit with an unexpected expense, credit cards can be the quick and easy solution you need.
  • Builds credit history: Responsible use of a credit card over time builds your credit history, qualifying you for better interest rates and other financial benefits.
 

Disadvantages

  • Overspending: Credit cards can make life easier, but they can also make overspending easier as well. With a credit card, you’re spending money you don’t necessarily have yet. If you’re not careful, this can quickly lead to unexpected debt.
  • Interest and fees: Using credit is essentially borrowing. And you’re not borrowing for free. Mismanaging a credit card can lead not only to a high balance, or maxed-out card, but also to debt in the form of interest and fees.
  • Fraud: Credit cards (and other electronic forms of payment) carry unique dangers. Credit cards can be stolen, their numbers can be copied, and they can be used to steal your money and identity.
  • Mounting Debt: If you carry a balance on your credit card from month to month, it can be very easy for charges and interest to rack up. Many people don’t expect credit cards to be gateways to extra debt, but if you’re not careful, that’s exactly what happens.

 

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