What you need to know about credit card
Most Filipinos prefer cash in every transaction because they find it convenient. But today, people enjoy the value of cash-free transactions in a more convenient way, especially when the COVID-19 pandemic occurs. People are now adopting cashless and contactless payment methods such as credit cards and e-wallets for their convenience and safety. They say, a credit card will put you in debt but they are totally wrong. It is actually how you will use and manage your credit card that may affect your finances.
What is a Credit Card?
A credit card is a type of payment card where the fee is charged to a line of credit as opposed to the account holder’s cash deposits. While failing to pay back the credit card on time could result in interest charges and late charges. Credit cards can also help users set up a positive credit history. It’s also great for managing your finances and cash flows as long as you get the right one and use it responsibly.
Advantages and Disadvantages of Credit Card
Before deciding whether to apply for a credit card or not, consider the benefits of owning a credit card below.
- Convenience. You do not need to withdraw funds and worry how much cash you have at hand for payment of goods and services. All you need to do is swipe your card and sign a receipt. Be sure to keep track of your expenses and pay in full on time to avoid charges.
- Establish a good credit history. Your credit score is built around your ability to manage your money and meet your financial obligations. Thus paying all your bills on time each month is the best way to get a good credit rating.
- Flexibility. Using your card, you can purchase home appliances, gadgets, furniture via installment plan that you can choose from what they can offer with no interest rate. In addition, you may also use your card to pay directly into a local bank account. These include school fees, rent, general insurance payments, membership fees, professional fees, etc. In my case, the card I use offers this feature and I use it for better cash flow management.
- Cash advances. You can get money when you need it, especially for emergencies and you don’t have enough cash on hand. Keep in mind that cash advances often have a higher interest rate and it is therefore important to have a realistic plan to repay these advances.
- Perks and Rewards. The most exciting thing about credit card is the rewards and freebies. Earn reward points and redeem gift cards, get discounts on hotels or airfares, and even cash back. All of these can be redeemed through your accumulated points earned from your purchases.
However, there are drawbacks as well that you should consider.
- Impulsive and unnecessary “wanted” purchases. Temptation and overspending may happen if you can’t control and manage your purchases.
- High Interest Rates. Failure to pay full on time will incur high interest rates. Thus, if you make only the minimum monthly repayment, you can never get out of debt.
- Late or Penalty Fees. Avoid late payments and do not exceed your limit, otherwise you will be charged a fee in addition to interest.
- Credit Damage. Damage your credit scores due to late payment.
Above mentioned are just a few of the pros and cons of credit card. The main advantage of owning a credit card is that it is convenient. But if you’re not good at budgeting and managing your finances, overuse of credit cards may leave you with a very difficult debt to pay down.