Debt Management – Benefits and Drawbacks of Using Credit Cards

Usage of credit card has grown with immense importance throughout the world. Not to forget, most of the transactions done online are carried out using these cards. It is the most common form of payment used worldwide. You would find POS (Point of Sales) terminals at almost every hotel, restaurant and shopping malls. In case you run out of funds, simply swipe credit card at any accepted POS terminal and pay later for the services used. However, not everyone would really fancy this idea due to rising average debt in the US and many other countries. Before you swipe your card, make sure to read the below-mentioned points:

1. It provides a safe form of payment, anytime and anywhere. Holding cash sometimes creates problem for you to handle it. As a result, people rely on using them to get rid of holding cash.

2. It saves time. Rather than standing and waiting in long queues, it save a lot of time and hassle when it comes to paying bills and other expenses via credit facility.

3. You can easily make purchases online. Online purchases are only carried out via credit cards. Most of the online stores have facility of different payment methods like PayPal, AlertPay and Moneybookers. However, when customers do not have accounts for these facilities, they usually with no other than making credit transactions.

4. Great companion during cash shortage. Mostly we have to face shortage of cash, especially when we are far from our home. At that moment, using credit cards really help in eliminating tensions and arranging for extra funds.

5. Financial institutions provide reward points for continuous usage. Many banks and leading financial institutes worldwide provide discounts and cash-back options for those customers regularly using their credit cards. These benefits could be anything ranging from free SMS messages, to 10% discounts on hotels.

6. Flexible insurance coverage – Many customers are at high risk of getting their cards stolen. As a result, leading insurance companies have partnered up with the banks to provide flexible insurance coverage to the users. In case of thefts and misuse, the insurance company backs up the customer for the losses.

With that said, it seems like a fancy idea carrying a plastic card with over 100,000 spending limit in your local currency. However, before moving on, I would still suggest to continue reading this article for all of the drawbacks so that you get a good idea of this entire system. After the 2008 recession, analysts suspect another major global financial turmoil to set pace in 2011. The recent stock market crash and the bankruptcies of leading European and American banks all signal to another big recession. With these points in mind, let us have a look at the drawbacks of using credit payment facilities:

1. Extra liability levied on you. At first, it is the actual payment that you are bound to pay back to the issuer no matter in how grief situation are stuck! If you are unable to pay within a month, interest will start adding to your original cost. This extra money or surcharges would create upheavals in your debt management situation.

2. Buying something not required. This habit of overspending may bring in serious debt management troubles as all your salary would be consumed in paying the credit amount, back to the bank.

3. Misuse – The favorite crime of cyber criminals aka hackers. These people steal your identity and misuse for their own purposes. Cybercrimes, and identity thefts are very common these days. Even with the most secure servers, all it takes is just the card number and the security code to get it misused over the internet. If you have given your credit card number to a dishonest salesman via phone internet, he/she may misuse it and you would suffer for this.

Usage of credit cards is governed by the terms and conditions of your bank that need to be followed in order to save your credit history from falling down. Make sure to compare both benefits and costs and only use this facility when required.