Credit Card is a very common payment method. Different from debit card which usually requires cardholders to have enough balance in every purchase, credit card allows customers to pay a merchant for goods and services based on the cardholder’s promise (or we say, Credit) to the card issuer (often the bank). That is, cardholders are in fact spending money beforehand. With a credit card, it’s feasible to buy products without enough bank balance for paying them. In other words, you are actually “borrowing” money from the bank by using a credit card.
However, there are usually some due dates for repayments. If the cardholders are able to repay their bills before these due dates, they could continue buying things by using credit cards. If they can’t repay these bills or if they repay these bills after the due dates, their credits would be lowered. Bank usually would set up some credit limits on credit card. If the cardholders’ credits are lower than the minimum credit limit, banks would punish the cardholders by blocking their bank accounts. In some serious situations, cardholders might suffer from legal issues due to credit cards.
Here, we could list some advantages and disadvantages for holding a credit card:
- Holding a credit card would increase your Purchasing Power
Credit Card would increase your purchasing power in two ways.
Firstly, it enables you to have buy things when you don’t have enough balance. Supposed that you want to buy some expensive commodities such as a diamond in the middle of the month, but you would only receive your month wage by the end of the month and only by that time you could have enough balance to purchase this diamond. A debit card would never allow you to do that, because it requires enough balance to purchase the product. However, you could easily fulfill your wish by using a credit card, because it allows you to pay your bill later. When this diamond is at a time-limited discount, a credit card might help you a lot.
Secondly, some international stores allow credit card consumptions without having the special kind of foreign currency in those stores, which means you could place orders worldwide using a credit card.
- Lots of credit cards have Interest-Free period.
Interest-free period means that during this period, you don’t have to pay any interest when in your repayment. If you could repay your bill before banks’ due dates, you don’t have to pay any extra money for “borrowing” money from banks.
- Using a credit card might produce some Rewards.
Some banks would set up lots of rewards by using credit cards. That means you can earn money back on your day-to-day purchase. Some credit cards, such as Chase bank, might give cardholders cash back on purchases at supermarkets, gas stations, and department stores.
Sometimes banks would have certain lottery-based activities, which allow cardholders to earn free flight and free hotel stays when they are using their credit cards for travelling.
- Credit card requires you to pay for the interests when repaying.
Although it’s convenient to pay later when you are out of money, when you are repaying your bill after certain due dates, you have to pay bills with certain Interest Rate. What’s worse, this interest rate would be higher and higher if you don’t pay off your balance before certain due dates.
- If you miss a payment, you have to pay a Late Fee.
If you miss a payment, besides paying off your balance, you have to pay a late fee as well. For most of the banks, the late fee is around 20 dollars to 30 dollars. If you continue delaying your bill repaying process, your credits might be suffered and your bank account might be blocked.
- Psychologically, credit card would make you spend money easily.
Because you don’t have to pay your bills when you are buying commodities, credit card might give you an illusion that you don’t have to pay for these things forever. However, it’s not true. Many people turn out spending more money than they could afford by using a credit card. That is, credit card truly makes the purchasing process easy, but sometimes it makes the purchasing process too easy for us.