What are 3 disadvantages of credit cards?

Credit cards tend to have a bad reputation, but the truth is that they can be a key financial tool if used responsibly. Here are some of the main advantages and disadvantages you should consider before adding a shiny new card to your wallet.

What are 3 disadvantages of credit cards?

Credit cards tend to have a bad reputation, but the truth is that they can be a key financial tool if used responsibly. Here are some of the main advantages and disadvantages you should consider before adding a shiny new card to your wallet. Credit cards come with an interest-free period, which is a period during which no interest is charged to your outstanding credit. With a range of between 45 and 60 days, you can get free short-term credit if you pay the full balance due before your credit card bill payment date.

Therefore, you can benefit from a credit advance without having to pay the fees associated with having an outstanding balance on your credit card. With revolving credit, since your bank balance remains the same, it can be tempting to put all your purchases on your card, leaving you unaware of how much you owe. This could lead you to overspend and owe more than you can afford, starting the cycle of borrowing and high interest rates on your future payments. If you do not settle your installments by the billing due date, the amount is transferred and you are charged interest.

This interest accrues over a period of time on purchases that are made after the interest-free period. Credit card interest rates are quite high, with an average rate of 3% per month, which would be equivalent to 36% per annum. Although it is not very common, there are chances that you are a victim of credit card fraud. With advances in technology, it is possible to clone a card and gain access to confidential information through which another person or entity can make purchases on your card.

Review your account statements carefully for purchases that appear suspicious and report to the bank immediately if you suspect card fraud. Banks generally waive fees if fraud is proven, so you won't have to pay for purchases collected by the thief. You should periodically check your credit limit and check if you have used more than 40% of the available credit limit. The report also states that about 56% of online purchases are made through desktop computers and about 30% of purchases are made with smartphones.

The boost in e-commerce sales will promote the use of credit and debit cards among the public. Credit cards have advantages and disadvantages, although with responsible use, the benefits far outweigh the disadvantages. The advantages of credit cards range from convenience and credit creation to 0% financing, rewards and currency conversion. The disadvantages of credit cards include the ability to spend more easily, resulting in costly debts if you don't pay in full, as well as damage to your credit rating if you don't make payments.

You have at least 21 days from the time you receive your credit card bill each month to pay it. This means that if you pay your bill in full every month, you can have up to 51 days (21-day grace period+30 days in a billing cycle) before you have to pay your credit card issuer for purchases you make. This helps your cash flow and is useful in the rare event that you spot unauthorized charges on your account. A credit card gives you considerable leeway to resolve any issues before they actually affect your bank account and the rest of your finances.

Credit card APRs are high compared to most other interest rates you'll find. For example, the average APR for a new credit card offering is 18.32%, according to WalletHub's latest Credit Card Outlook Report. In comparison, interest rates on auto loans tend to range from 3% to 7%, and mortgage rates tend to range from 3% to 6%. That's why you should pay credit card balances in full whenever possible.

Beyond interest, many credit card issuers charge fees for late payments, balance transfers, cash advances and foreign transactions, among other things. Banks and financial institutions often consider the use of credit cards as a way to assess the creditworthiness of a potential loan applicant, which makes their credit card important for future loans or rental applications. Misusing a credit card can negatively affect your credit score, which can lower your chances of getting the best rates (or even getting approved) on things like mortgages, car loans, and personal loans. .

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