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The Advantages And Disadvantages Of Credit Card Essay

Using Credit Cards – Advantages and Disadvantages

The first credit card company was established by Western Union in the 1920s. Since then credit cards have gone from easily counterfeited paper cards to highly sophisticated cards with embedded computer chips that track your every purchase and automatically reports the charge to the users account. Unlike their predecessors which were limited to the store which issued the card, modern credit cards can be used to make purchases at most retailers, for online shopping, and to make cash withdrawals from ATMs. Using a credit card can provide many benefits for the user as long as they are wary not to fall into any of the pitfalls.

How to Get the Most From Your Credit Card

Regardless of your history with credit cards, there are ways to get the most from your cards in order to stay on top of your balance, without going overboard. Here a just a few tips that can help you to do so:

  • First, apply for a credit card that offers you maximum benefits and suits your needs. Interest rate, balance transfer charges, annual fee and reward points are the main factors of consideration before applying for a credit card. There are many online credit card comparison services that help you find the best offer. creditcardoffers.com.au allows you to do the same and their service is 100% free.
  • Use your card as a means to keep track of expenses. The best way to do this is to keep all of your receipts, and then check them against your monthly credit card statement. Should you notice any errors, you should immediately notify the credit card company. Usually, credit card companies are fairly helpful when it comes to removing bogus charges, along with any of the corresponding charges or fees.
  • You should also apply to be notified if your credit card notices any suspicious activity on your account. Many card companies even offer additional identity theft protection, which can be priceless should your identity be stolen.
  • Some card companies also offer damage protection if you should purchase products that are defective. This, too, can be worth it – especially if you purchase big ticket items such as electronics or appliances.

Advantages of Using a Credit Card

Credit History: For many first time credit card users the biggest perks of using a credit card is that it allows them to build a credit line. A good credit history is vital to purchase a home or a new car, and making credit card payments on time is a quick way to build a good credit history.

Ease of Purchase: A credit card makes it easy to buy anything at any time, without having to carry large amounts of cash.

Emergencies: In an emergency, such as an auto breakdown, where large amounts of money are needed on short notice a credit card can be used to make unexpected purchases, such as paying for a mechanic, or for a hotel room.

Disadvantages of Using Credit Cards

High Interest Rates:  Credit card companies make their money by charging high interest on all of the money you spend on your card. These interest rates will be far above those you would receive from a bank on savings, or have to pay on a bank loan, sometimes as high as 25%. This high interest rate can make it very easily to accumulate debt.

Credit Card Debt: The ease of purchasing with a credit card combined with the high interest rates make it very easy to inadvertently build up debt. And the longer this debt is on the credit card the more interest will be charged on it, creating even more debt.

Overspending: Combined with the risk of debt from high interest rates is the risk of blowing your budget. Most people have trouble keeping track of their spending when the money being spent is not physically in their possession. Credit cards make it easy to trivialize the amount being spent.

Scams: Credit cards can be stolen, either physically or just the numbers taken through a variety of means like identity theft and phishing scams. If a thief gets a credit card number they will be able to rack up debts on the users account.

Using Credit Card at ATM

One advantage of a credit card that is wrought with hidden disadvantages is using a credit card at an ATM. On the surface this may seem like a great idea, because it allows you to get cash for those few businesses which do not take credit cards. However, in addition to the charges from the ATM for withdrawing cash, with many credit cards you will have to pay an increased interest rate on any cash advances.

Avoiding Credit Card Debt

As long as the user is careful, it is easy to avoid credit card debt. Always be sure to keep track of your purchases, and be careful of your budget. Check your account frequently for unexpected charges, and never give your credit card number to anyone. Also, to avoid interest, pay off your balance at the end of every month.

And now, to those readers (mostly students), who have been asking to publish an essay on advantages and disadvantages of credit cards, it is live Here.

But, if you don’t act with discipline you could end up paying lots of interest and racking up debts that are a struggle to pay off. 

So what are the pros and cons of having a credit card – and what is the best way to apply for a card and get accepted? 

The pros 


If you need to buy something expensive and can’t afford to pay for it all in one go, then a credit card is ideal, as long as you use it sensibly. 

A 0% purchase credit card allows you to pay for the item in full and then spread the costs over a number of months, by making a series of payments to clear the balance. 

As long as you pay this total off before the end of the interest-free period then you won’t get charged anything for using the card in this way. But miss this deadline and you will pay a penalty in the form of interest being added to the balance each month. 


You get more protection if you pay with a credit card than if you pay with a debit card, cash or cheque under something known as Section 75 of the Consumer Credit Act. 

If you buy something that costs between £100 and £30,000, you will get your money back if it all goes wrong. In other words, if the company goes bust, or your purchase is faulty or doesn’t turn up, you won’t lose out because you can claim the money back from your credit card provider.

You’ll also have protection if your card is used fraudulently as your card provider should refund the money. This won’t work though if your card provider finds that you were negligent so make sure you don’t write your PIN number down anywhere.

You get more protection if you pay with a credit card than if you pay with a debit card, cash or cheque under something known as Section 75 of the Consumer Credit Act.

Borrow for free

Some credit cards offer 0% periods meaning you can effectively benefit from an interest-free loan. You need to make the minimum monthly payments though, and clear your balance before the 0% offer ends though otherwise you’ll be charged interest. 

The average interest rate is 18% - pretty hefty, which is why you should pay your debt off before interest kicks in.

Not everyone needs an extended interest-free period, but even if you pay your credit card bill in full each month, you’ll still ‘borrow for free’. Credit card statements quote that you get ‘up to 59 days interest free’ – what this really means is as long you pay off your bill in its entirety by the due date, you won’t be charged interest. This can be a great help in managing your cash flow.

Earn while you spend

Some cards even offer incentives to spend, such as cashback, loyalty points or air miles, which means you could actually make money from your credit card. These are only worthwhile if you pay your bill in full – otherwise the interest you’ll be charged will be more than the value of the rewards. 

Switch your balance

If you owe money on credit or store cards, taking out a new card could actually be a good option. You'll probably be paying interest rates of at least 18%, but you could cut that to zero by transferring your debt onto a 0% balance transfer card.

There will be a transfer fee to pay of around 3%, but it's usually worth it as it will still be less than the interest you'll be charged if you stick with your existing card.

Ensure you pay your debt off before the end of the 0% period though as you will then be charged interest on any debt you still have. You can use our Smart Search tool to find out how likely you are to get accepted for each card. 

The cons

Beware the debt trap

It's important to remember that a credit card is a form of borrowing. You buy now and pay later - and there are risks.

If you don't pay off your balance in full each month, you will start to rack up interest. Your debt can therefore quickly spiral out of control, particularly if you pay off only the minimum monthly amount.

You should therefore always try to pay more than the monthly minimum and you should think of your credit card only as a short-term borrowing facility. You can find out how your balance is affected by changing your monthly repayment amount with our credit card calculator. 

Hidden costs

The interest rate is not the only cost of a credit card. A fee will be charged if you are late making your monthly payment, or miss it altogether. You'll also pay a penalty if you exceed your credit limit. So make sure you keep track of your spending and always pay your bill on time.


And don't be tempted to withdraw cash on your credit card. Most card firms charge a fee to withdraw cash from an ATM, typically about 2%. You will also start to rack up interest immediately as there is no interest-free period on cash withdrawals.

Pick the right card

Make sure that you pick the right card otherwise you could end up paying more than you need. If you've got an expensive time coming up, maybe you’re moving house or planning a wedding, you should look for a 0% purchase card.

If you need a new card because you've built up expensive debts on another credit card, it's a 0% balance transfer offer you need. Alternatively, our handy credit card decision tree will help you work out which type of card is best suited to your spending. 

Where to next?

What is a good credit score?

What is a credit card?

What is a balance transfer card?

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