Advantanges and Disadvantages of Credit Cards

By Sharon L. Cohen

  • Overview

    Advantanges and Disadvantages of Credit Cards
    A credit card is a thin plastic card that normally measures 3-1/8 by 2-1/8 inches in size and includes personal identification information, such as a name and signature. It authorizes a person to charge items or services purchased on an account, so that charges will come at a later time. Credit cards were first used in the 1920s, but greatly increased in popularity after World War II. The advantages or disadvantages associated with credit cards depend on how they are used or misused by their owners.
  • Convenience

    One of the advantages of credit cards is that they can be used in place of money in most locations, so that people do not have to personally carry a great deal of cash with them. This makes it more convenient and safe, as credit card companies can be called immediately to stop payment if a card is stolen or lost. Also, the credit card extends your ability to buy. If you want to purchase something, but do not have the money with you at the time, you can still get what you want and pay for it later. Most recently, credit cards also allows people to buy products and services online through e-commerce Web sites. From the computer in their home office, they can shop all over the world. Credit cards also make it possible to travel throughout the world without being concerned about currency exchange.
  • Borrowing

    Using credit cards also helps people build up credit and demonstrate their ability to pay in monthly installments for loans and home mortgages. Financial institutions do not like to loan money to individuals who do not have a credit history that shows their ability to pay off debt in a timely manner. Likewise, when someone wants to go to the bank for a commercial loan for his business, it is important to be able to show the funder that the money borrowed will be paid back on time.

  • Overspending

    However, there are also disadvantages to having a credit card. It is very possible, as is the case with many people today, to spend more than what one's budget allows. Similarly, when someone has a credit card, it is enticing to buy things that are not needed. This can have very negative results, since the interest due on the monthly payments makes it extremely difficult to pay back the principle in a timely manner. The amount due continues to increase until it is almost impossible to bring it back down to zero. This becomes even more of a problem when someone has several credit cards and starts paying off one with the other. The credit debt gets deeper and deeper.
  • Delayed Reaction

    When someone has a credit card, it is enticing to purchase items on impulse that are not needed. You easily hand over the credit card without giving much thought to what you are buying. This frequently means you are more likely to get into debt buying things that would normally be either too expensive or a luxury rather than a necessity.
  • Bad Credit Rating

    Paying off your credit cards in a timely manner can make you a shining star in the eyes of lenders. Yet, the opposite also holds true. It is very difficult to get a mortgage or loan from a financial institution when someone owes a great deal of money on a credit card and continues to get further and further behind in payments. If you have a tendency to overspend, the best thing to do is cut up your credit card(s) and use a debit card instead. This will keep you in good stead with lenders.
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