Advantages and Disadvantages of a Credit Card

Apply For a Credit Card it's a Convenient Way of Making a Purchase?

Feb 27, 2009

Although one of the causes of spiralling bad debt, in many respects it makes good sense to apply for credit card for purchases. Look at the advantages over paying cash.

Using a credit card is without doubt a very convenient way of paying for things, safer in some respects, because it means no large sums of money need to be carried about.

Advantages of Using a Credit Card

In a highly competitive financial world credit card companies will try to temp customers with all sorts of goodies; for example air miles, free insurance, club card points and cashback, the list is almost endless.

0% Interest on Balance Transfers Credit Card

However before an application is made, remember there is nothing for nothing in this world, in terms of interest rates what are other companies offering. Does the card come with 0% interest on balance transfers and 0% interest on purchases?

Apply for a Credit Card

Of course it is sometimes possible to get the best of both worlds but for that, lots of research is needed before applying for a credit card.

Paying with a credit card means that extra protection under the Consumer Credit Act is available. When a purchase is completed the contract made is with both the retailer and the credit card company meaning they both have liability if something should wrong and action is needed to rectify the problem.

Disadvantages of Using a Credit Card

Outwith any 0 % interest on purchases offer a new card may come with, there are interest charges to be paid, unless the full amount is paid each month. There may also be payment protection insurance and annual fees on top.

One of the major, but often overlooked, disadvantages of a credit card is the impulse factor. There can’t be many people while walking down the high street have seen something in the shop window and thought “I’ll just stick it on the credit card.”

Credit Card Debt

In the days when multiple cards were easy to get, credit card debt mounted alarmingly and minimum payment for many borrowers became the norm. Of course in difficult times it’s sometimes difficult to avoid making just the minimum payment.

However consider this scenario. If a card has a balance of £3000 at an interest rate of 17.9% and a minimum payment of 2% of the balance it will take a staggering 41 years and cost over £6,300 in interest.

So the initial minimum payment will be £60, in five years it will have dropped to £41, in 20 years it will have been reduced to £14 and so on until the debt is finally paid.

It’s certainly an equation to concentrate the mind when considering how much to pay to a credit card at the end of the month.

This information is obtained from the reputable sources listed below but is not offered as financial advice. It is important to thoroughly investigate the market before selecting a credit card.

The copyright of the article Advantages and Disadvantages of a Credit Card in Personal Budgeting/Finance is owned by Neil Gunn. Permission to republish Advantages and Disadvantages of a Credit Card in print or online must be granted by the author in writing.