A credit card has become an imperative part of our lives, with its convenient pay-back options & ease of use. The offers, deals, & discounts that a credit card offers are unparallel by any other financial products. But credit cards can become debt traps if you spend on your credit card more than your credit limit. In such circumstances, this financial tool can be very risky and expensive.
If you are deciding whether or not a credit card is right for you, here is a list of some advantages & disadvantages you can consider to make your final decision.
Advantages of Using Credit Cards
- Easy Access to Credit: One of the biggest advantages of using a credit card is its easy access to credit. Credit cards work on a deferred payment basis. That means you can use your credit card to make any purchase and then repay the amount for your purchases later. In addition to this, if you don’t like to carry cash along with you or if a vendor doesn’t accept cash purchases (such as car rental companies, hotels, airlines), you can easily make a transaction through credit card.
- Building a Credit History: A good credit history not only plays a vital role when applying for a credit card but allow when applying for other essential things such as loans or rental applications. Having a credit card & using it responsibly by making repayments in full on time each month will definitely help you build a good credit history.
- The Facility of EMIs: If you are planning to make a large purchase & you don’t want to spend your savings on it, you can choose to pay off your purchases in easy to pay equated monthly installments. Paying through EMIs is cheaper than availing a personal loan to pay for a purchase such as air conditioner, television, or refrigerator.
- Offers & Rewards: Most of the credit card comes with an array of rewards & offers. These range from rewards point accumulation to cash back each time you swipe the credit card. These rewards points or cash back can further be redeemed as air miles, for purchasing air tickets, movie tickets or can be used to pay credit card outstanding dues. Some banks & financial institutions also offer attractive discounts on purchases made through a credit card in UAE such as holiday on large purchases, complimentary golf benefits, buy one, get one free offer.
- Grace Period: The bank provides you a minimum of twenty one days as a grace period from the time you receive your credit card bill each month to pay it. Meaning that if you pay your bill credit card bill in full every month, you may have a maximum of fifty-one days (Twenty one days as a grace period + Thirty days in a billing cycle) before making repayment for the credit card purchases.
- Purchase Protection: Some credit cards offer additional insurance in the form of insurance for all items that might be stolen, damaged, or lost. The statement of a credit card can be utilized to confirm for the veracity of a claim if you wish to file a claim.
Disadvantages of Using Credit Cards
- High Rate of Interest: If you do not pay off your credit card outstanding dues by your payment due date, the amount is carried forward & banks charge interest on it. This is why most of the people get into debt. Keep in mind that interest rate charged on credit card is quite high so make sure you clear your dues on time every month.
- Wrong Use Can Impact Your credit score Negatively: Your credit score solely depends on how you make the use of your credit card. If you use your credit card for large purchases and pay your credit card outstanding dues late, your credit card will definitely affect negatively. Since missed credit card repayments as well as ongoing debts are recorded in your credit file and can ruin your credit score. Also, it can impact your chances to get a loan in the future as banks generally avoid offering loans to those individuals who have a bad credit score.
- Temptation to spend More Than You Can Afford: Since your bank balance remains the same, it might be tempting and easier to put all your purchases on credit card. This could ultimately lead you to overspending & owing more than you can pay back. With this, the cycle of debt & high interest rate on your future payments begins.
- Hidden Fees & Charges: Without any doubt, credit cards are very easy & simple to use, but it carries a number of hidden fees & charges such as late payment charges, renewal charges, joining fees, processing fees that could burn a hole in your pocket. Missing a credit card payment could result in a penalty. Also, late payments could even result in the reduction of your credit card limit as well as it affects your credit score negatively.
- Terms & Conditions Can Be Confusing: Such people who are not used to reading credit card agreements can be get confused by the jargon & phrasing. Understanding credit card terms & conditions are very important to use the credit card in a manner that doesn’t put you at risk of unnecessary fees & charges. Also, you will have an idea that how to avoid credit card charges by going through all the terms & conditions.
- Credit Card Fraud: There are chances that you might be a victim of a credit card fraud. With modern technology, there is a possibility to gain access to confidential information through which another entity can make a purchase on your credit card. Check your credit card statements properly for purchases that look suspicious to you and inform the bank immediately about the same. If the purchase is proven fraud then the bank generally waives off that charges.
In A Nutshell
So, if you are going to apply for a credit card in UAE, it is vital to consider all the above-mentioned advantages & disadvantages they offer based on your own circumstances. This will help you to make the most of your credit card.