Credit cards offer a tremendous convenience - it's an instant loan. Credit cards allow you to take your bank with you wherever you go. If you own a card , you have always cash with you unless getting cash from an ATM, you have instant access. If paid in full each month, credit cards can offer an interest-free loan.

Shop around, you will find a wide range of interest rates, annual fees and enhancements. If you pay off your balance every month, look for a low annual fee and a high interest rate. If you carry a balance, look for a high annual fee and a low interest rate. In many cases you can find cards with
no annual fees. Other advantages includes, security in emergencies, enhanced personal responsibility and independence. You are able to track your personal expenses with your credit card statement. Purchases can be identified by category so you'll know where charges were made and when.

The main advantages are:

  • Flexibility and convenience.
  • Enable phone and Internet shopping and bill paying.
  • Worldwide acceptance (except bank card and store cards).
  • Extra protection if you dispute a transaction as the card issuer can reverse the charge (chargeback).
  • Some cards offer additional features, such as loyalty scheme points.
  • Allows for fast repayment.
  • No need to carry large amount of cash.
  • Your liability can be limited if your card is used fraudulently.
  • Enables you to avoid transaction fees levied with debit and cheque accounts.

After all those great advantages, how can credit cards be so dangerous? It has to do with you, not the card itself. You have to know how to control your impulses when it comes to spending. The disavdvantages are

Way too tempting:
As you have credit card with you always , i.e. 24 hours cash with you , you intend to spend more. It will tempt you to buy more things apart from your budget, as you have time to pay the money back.

Carrying a Balance:
Everybody will say that they will pay amount in full and on time. That may be what you intend to do, but the plain fact is that about 60% of cardholders carry a balance (owe money) from month to month. Many of these people thought they would pay off their bills each month too. The convenience of credit can be very hard to resist.

The other disadvantages are

  • High interest rates.
  • Interest on late payments may be charged from the date you made the purchase.
  • Fees and penalties can be high.
  • Expensive for long-term borrowing. The interest rates on some cards are much higher than rates
  • For personal loans or overdrafts.
  • Cards with loyalty programs often have higher interest rates and fees.
  • If you don't pay back your total balance each month, the interest charged can actually end up doubling the cost of your original purchase.
  • If you're not good at budgeting and managing your finances, the over-use of credit cards can leave you with a debt that's very difficult to pay back.

How credit cards are billed?
Unlike repayment on a traditional loan, such as a student or car loan, credit cards do not allow you to spread the amount you owe over a fixed period of time. Instead, you are required to make a minimum monthly payment, which is the smallest amount you can pay and still meet your cardholder agreement (the terms you agree to when signing up for the card).

The minimum payment is usually 2 percent of your outstanding balance. Unfortunately, by paying only the minimum each month instead of paying off your entire balance, your debt will continue to grow. Many credit card companies also charge late fees (usually 2 percent of the outstanding balance), and higher interest rates on cash advances.

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