Credit cards have become an integral part of life. The dependency upon credit cards for buying the expensive item that we can’t afford to buy by cash in an account is regularly increasing. However, this tendency invites some problems also. There are advantages and disadvantages both for using a credit card. Before going ahead, let’s have a glance over the advantages and disadvantages of credit cards:
Benefits of Credit Cards:
- Use of credit cards is too easy
- Freedom to pay for anything
- Many cards offer cash rewards programs
- Reduced to carry cash
- Builds credit history
Disadvantages of Credit Cards:
- The high-interest rate on the dues after the interest rate free period is too high; the mounting contributions trap the users for the longer than the expected under debt net besides harming the credit score.
- Credit damage occurs silently about which most of the users are not aware. Each usage is reported to credit bureau agencies.
- The numbers of cases registered against credit card fraud have increased many folds in the UK. Fraudsters target the people looking for instant cash help by anyway.
- The numbers of financial institutions make it expensive to use a credit card for getting cash by applying cash advance fee up to 3% of the total transaction amount.
- Different credit cards users charge different annual fees.
- Numbers of fees charged come to your notice only when you get the statement.
If compared, the disadvantages are decreasing debit card ownership. The UK people are 58% more likely to have a debit card rather than credit card. In 2017, £193 billion was lent via credit cards; the repayment was just the £150 billion. That people are experiencing the problems after using credit cards; therefore, they are turning towards the alternatives of credit cards.
Alternatives of Credit Cards:
Prepaid Debit Card:
The prepaid debit card, applicable to ATMs, is loaded with money by the user in advance. These are useful for online shopping, making daily purchases and bill payments. London based Retail Banking Research forecasted that prepaid cards usage will increase by 28% by the end of 2021. The prepaid debit cards cost very less or free of cost. Also, you can have separate prepaid cards for family members; as the freedom to spend is limited, so, the monthly expenses remain on track. The issuing agency doesn’t inquire into the user’s credit history; therefore, even a bad credit history holder can avail this plastic card facility.
Almost 60 million card transactions per day within the UK may be done by 2026. These cards allow users to spend money from the deposited funds. Debt-conscious UK residents prefer debit card usage rather than using a credit card. The debit card allows the transaction only if the referred account has adequate funds; so, the user never faces late fees or penalty. Most of the debit cards provide all the benefits like credit cards.
An overdraft is a convenient and affordable solution to get instant cash help whenever needed. However, it should be used only when this facility is necessary. Not using the bank account overdraft facility responsibly can lead you to incur fees; however, these fees are capped now. Using the overdraft for high emergency purchases is a feasible alternative to a high-cost credit card. It is easy to get; if you have funds in the account or you have a good image for the bankers, this facility is made available instantly.
Peer To Peer Borrowing:
Peer to peer borrowing is the growing trend in the UK; it is being accepted widely as a feasible alternative to a credit card. It is a personal loan format. Instead of borrowing from a direct lender or regular bank or building society, you borrow from individuals keen to earn more on their savings than the monthly interest rate in banks. Numbers of websites may help you find such individuals; these agencies work as a mediator. The best advantage is that you hardly need follow-ups.
Almost everyone is using a Smartphone. The numbers of electronic wallets allow to store the funds and to pay for the purchases. Even the received funds can be transferred to bank account. The best known electronic wallets are ApplePay, Google Wallet, Paytm etc. The prime advantage is that electronic wallet maintains complete information of all the transactions made – debit and credit both. As no one else can use the electronic wallet, so, it is highly safe. It is absolutely a cost-free facility that brings freedom from carrying credit or debit cards.
Why do I use credit cards? Only, you can pay instantly without carrying cash. When you always carry a Smartphone, why don’t use online banking to pay? It is comfortable and safe. It is any time payment facility free from geographical boundaries. You can use this facility even out of the country while some credit cards and debit cards are accepted within UK boundaries. When you pay some cost for holding credit cards and debit cards, it is free to avail facility offered by banks to each account holder.
Gift card bearing the logo of any major credit card is widely accepted almost everywhere where credit card, debit card or prepaid card is accepted. However, the gift card has a fixed preset value. It can’t be reloaded; so, it is a one-time usage facility up to the credited amount. Although acceptance is limited, still, using these is a great way to save more with a limit on expenses.
There are numbers of ways to get freedom from the debt trap of credit cards. The importance of circumstances can’t be denied as some credit cards allow even cash withdrawal under the specified limit; the cash withdrawal facility can be used as the no credit check no guarantor personal loan for short-term. Using credit cards is good, but it needs financial discipline where most of us lack and pay the cost for longer. The endpoint is – use a credit card only as the last financial relief option when you don’t have any other alternative to a credit card.