Across the globe, credit cards have almost become a household item, primarily because they offer many privileges and convenience, including the provision of credit as well. People have started relying on using cards for a variety of smaller transactions including groceries, gas uptake and even eating out but is it the best utilization of your credit cards? Though it is evident that there are some advantages associated with overriding consumer purchases on credit cards, there are also some disadvantages to fifteen things.
In this blog, we’ll explore the pros and cons of using credit cards for everyday purchases, helping you make informed decisions about when and how to use them in a responsible and beneficial way.
The Pros of Using Credit Cards for Everyday Purchases
1.Convenience and Ease of Use
A credit card does have its limitations, but it is arguably one of the most convenient ways to make purchases as you do not need to carry cash around. One could contend that whether shopping at a physical store, or online, a credit card payment is simple, quick, and secure. It can be used for a variety of payments including a coffee, or expensive gadgets with no need to worry about cash.
Besides, several providers of credit cards have now included contactless payment methods which makes the process of payment even faster, and more convenient. In situations which call for a hurry or when traveling and making purchases, this feature is particularly helpful for users.
2. Rewards and Cash Back
Using a credit card in making purchases is one of the best options since every spending made using the card is translated into points or rewards. Almost all credit cards carry some form of reward and for the non-cash credit cards, some form of reward exists in the form of points, cash backs or miles for every dollar spent out of the card, while a very few do not. In fact, there are others which provide enhanced spending limitations with higher rewards for groceries, fuel and restaurants.
For instance, if a card allows 2% cash back on groceries and one spends $500 monthly on groceries, then a cash reward of $10 on a monthly basis or $120 rewards a year can be earned by simply making purchases. When these rewards are well leveraged, they accumulate leading to more savings which are also accompanied by other offers such as free tickets, hotel accommodations or gift cards.
3. Building Credit History
As long as you manage your credit card efficiently, you should not have any problems getting a good credit history. This was made easily possible thanks to the credit card companies who reported your repayments to the major credit bureaus, enabling payment and low utilization to encourage enhancement of credit scoring. Acquiring a good score is important for a lot of things including loan ease, interest rates and even renting places.
Lenders can also see you as a capable borrower when you only use your credit card for necessary shopping and pay off the whole amount every month.
4. Fraud Protection
In most cases, credit cards come with better fraud protection than cash or debit. If a credit card gets lost or stolen, the majority of issuers provide zero liability protection, which means the card holder is not liable for any wrongful charges in such cases. Furthermore, a lot of credit cards have the ability to track the customer’s account for any suspicious act and ensure that they alert the customer once any theft has been attempted.
Such protection can help you feel comfortable when making purchases from the internet, or from areas where the possibility of fraud is considerably high.
5. Interest-Free Period
Most credit cards charge no interest for around 25 to 30 days. This period begins when a purchase is made, and ends when the payment is due. Individuals will not be charged interest on their purchases if the purchase is returned with the payment by the set date. In this way one can be able to “rent” a sum of money without any cost of interest during the grace period if all payments are done on time.
The Cons of Using Credit Cards for Everyday Purchases
1. Risk of Overspending
Perhaps the hardest aspect associated with credit cards for ordinary purchases is that one is very likely to spend more than what was intended. A credit card provides an individual with a credit facility that may be taken advantage of when one overshoots what was originally planned within their budget. Cash, unlike credit cards, can be physically possessed and hence limits one’s expenses but credit cards allow one to buy and pay at a later date.
It has been observed that people use credit cards or debit cards for branding to make their purchases than cash. This is termed the ‘credit card effect’ – the phenomenon in which the user attaches a psychological value to the act of purchasing rather than to parting with cash. This is even more alarming if the full repayment is not adhered to for these cards, as this causes interest to build up ways.
2. Interest Charges and Debt Accumulation
If, on the other hand, you do not clear your credit card debt within the 30 day period, then interest will be charged for the amount left behind. Most providers will charge a relatively high interest rate with an average Annual Percentage Rate ranging from 15% up to even 25%. If you pay with a credit card and do not pay off the balance each month, this could lead to some very high expenses due to high interest charges added to the amount owed.
For example, with a balance of 1000 dollars and if only the minimum payment is done every month, it may take years to reach 0 dollars balance owing with an eventual total interest of hundreds of dollars. This is how quite often no one turn regard to credit card debt turning potential perfect financial instrument into a disastrous burden.
3. Potential Damage to Credit Score
Credit cards can be a great aid for establishing one’s credit, but they are a double-edged sword if not managed properly. Late payment or absence of one, usage of more than the permitted amount, or substantial balance on the card are some of the ways that this credit score can be lowered. Such actions are interpreted by lenders as signs of risk and strain financially, making such people more likely to have problems with access to further credit in the future.
To reduce the risk of damaging your credit score, it’s critical to provide funds by the designated date, don’t fill the credit card limit entirely, and try to make sure that the credit utilization ratio is less than 30%.
4. Fees and Charges
Like many other financial products, credit cards have a variety of fees which include annual fee, late payment fee, foreign transaction fee, balance transfer fee among others. If not checked these fees may offset the rewards or benefits that one would be earning.
There are certain cards that have annual fees that may be as low as $95 but can run into hundreds of dollars, and when one does not use the card frequently enough to make the fee worthwhile, it hardly makes sense even to own the card. In addition, if one makes late payments, excessive late charges may apply, and in some cases, the card issuer may raise the interest rate if the consumer falls behind in payments.
5. Negative Impact on Mental Health
At times, credit card debt can become a source of strain for some individuals. Constant payment obligations, the risk of going even further into debt and the obligations for the minimum payment requirements can have an effect on one’s well-being.
If you suffer from anxiety over your finances or have troubles with debt, over-using credit cards for your minor expense may aggravate your situation.
Best Practices for Using Credit Cards Wisely
If you decide to use credit cards for everyday purchases, here are some tips to help you do so responsibly:
- Pay off your balance in full each month: Avoid interest charges by paying your credit card bill in full every month.
- Set a budget: Track your spending and create a budget to avoid overspending. Treat your credit card like cash and only spend what you can afford to pay back immediately.
- Choose the right card: Use a credit card that aligns with your spending habits and offers rewards in categories where you spend the most, such as groceries or travel.
- Monitor your account regularly: Keep an eye on your account to detect any fraudulent activity and ensure that you’re staying within your budget.
- Know your limits: Be mindful of your credit limit and aim to keep your credit utilization below 30% to maintain a healthy credit score.
Conclusion
Credit cards are so much in use nowadays so it has become a norm to use plastic money for buying things and services. It has a lot of benefits like rewards points, credits, etc. On the other hand, there is a high risk of overspending and charging more than what can be simultaneously paid, which can result in a harmfully low credit score in some unfortunate cases.
However, if controlled credit cards can be used for positive reinforcement whereby you do not spend more than what you can afford and pay in full before the next billing cycle. In this way, it is possible to utilize the services and reap benefits while minimizing the downsides ensuring credit cards become a genuine financial instrument.