You’ve probably heard a lot about the perils of a credit card. About how you can fall in a terrible cycle of debt with them and how it’s all a ploy to get you to pay the high interest rates. On the other hand, you’ve also probably been wooed by the credit card providers with great offers and tie-ups. But at the end of it, are credit cards angels from above or devils in disguise?
The truth lies somewhere in between. Just as with any other tool, credit cards by themselves are neither good nor bad. How you use them is what matters. So let’s look at both sides of the story.
The perils of a credit card
High interest rates
In general, credit cards come with annual interest rates of 24% and higher. “But my card only charges 2%!” If you believe that, then you’ve fallen for a very simple marketing trick used by the credit card companies. They divide the annual interest rates, the ones that are used in all of the financial calculations, into monthly interest rates. And that’s how you hear rates like 1.75-4%. If you don’t clear your dues on time, within a few months you’ll end up paying quite a lot more than what you bargained for.
Other charges and fees
Paying only the minimum amount due per month on your credit card? Don’t worry. You’ll be able to pay the rest of it later, with the interest charged + late payment fees + a couple of other charges + taxes on those additional fees. It might not seem like much, but if you really look at your statements, that’s a lot of money.
The spiral of debt
Once you get into the vicious cycle of credit card debt, it becomes nearly impossible to get out of it. You end up paying with all your resources to clear your credit card debt just because you made a few purchases from your card.
Credit cards make transactions seem so easy, they’ve been known to lead people to start impulse buying. Hence, if you are not wise with its use then you might end up in debt.
The real benefits of a credit card
Now as we said before, credit cards are not inherently bad. They can help you cover emergency expenses and even increase your standard of living – if used properly. Here are a few reasons why you should get a credit card.
Great in emergencies
Credit cards are a saviour in financial emergencies. For instance if you or a loved one is hospitalized and you need to cover some expenses, you can pay the bills with the card. After all, that’s not the time to ponder over financial decisions.
Helps you build a credit history
Not all loans are bad – especially if you plan to take a home loan at some point in the future or think you might need to take a business loan. Maintaining a good track record with your credit card leads to a good credit score and maintaining a good credit score leads to easy approvals of loans.
Cash backs and offers
Credit cards come bundled with many offers. Each bank has their own tie-ups that offer you great deals like free movie tickets, miles on airlines, discounts on online purchases, and a lot more.
Credit card transactions are safer than debit card transactions. With a stolen debit card, you risk losing money from your account. With a credit card on the other hand, fraudulent transactions can be notified and reversed by the bank with simple procedures.
In the end credit cards are both a blessing and a curse, however how you use them matters the most. Credit card companies will always tempt you to get a card because they want to gain from your financial mistakes. Be careful with your card and make your transactions wisely.