Advantanges and Disadvantages of Credit Cards
Credit cards offer consumers and businesses a way to pay for goods and services without having a check or cash. They allow for long-distance payment transactions via phone or the Internet. Credit cards also provide purchase summaries in the form of monthly statements or online access. As an added benefit, they provide protection against fraud or credit card theft. Despite these advantages, credit cards can cause financial problems. Consumers and businesses may find they have "maxed out" their cards or ran up their credit limits. Credit card overspending can lead to serious debt.
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Convenience
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One of the major advantages of credit cards is the convenience they provide in purchasing goods and services. Consumers and businesses are not forced to have a check or cash handy. They can also make purchases via phone or online by providing their credit card information. This also allows retailers and merchants the ability to process payments quickly.
Information Access
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Credit cards provide purchasing summaries in the form of monthly statements. These statements list the merchant's name and the transaction amount. In some cases, the merchant's phone number may be listed. This information can also be accessed online by logging into a secure credit card website. Information access allows consumers and businesses to see how money is being spent. This is useful for accounting and budgets, where expenses are allocated to different areas, such as meals and entertainment, office supplies and travel.
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Fraud Protection
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Another advantage of credit cards is fraud protection. If a consumer or business believes a charge was made on their credit card without their consent, they can dispute it. The credit card company will conduct an investigation to determine if theft or fraud is involved. If so, the credit card company will not hold the cardholder responsible for the charges.
Spending Problems
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A disadvantage of credit cards is the spending problems some users get into. With a line of credit available, consumers and businesses are able to make purchases now that don't have to be paid for until later. Purchase amounts can easily add up, especially when using more than one credit card. This can cause the cardholder to owe a significant amount of money. When the credit card statement arrives in the mail, the balance due may be more than the cardholder is able to pay.
Financing
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Financing allows credit card holders to avoid paying the total credit card bill in full. Instead, they are able to pay a minimum amount. While this provides some financial flexibility, it can also be a disadvantage. Credit card debt comes at a price in the form of finance charges or interest. This is how the credit card company makes money off of consumers and businesses. High credit card debts can lead to costly finance charges. This can compound problems when cardholders struggle to make payments that include these fees.
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- Photo Credit credit card and pen image by PaulPaladin from Fotolia.com
