When used responsibly, credit cards can offer several potential benefits:
A convenient payment option
Credit cards offer a convenient payment method, eliminating the need to carry substantial amounts of cash that can be both inconvenient and susceptible to theft. Moreover, credit cards provide a solution for situations where you may not have immediate access to liquid funds or prefer not to deplete your savings in one go.
With a credit card, you have the flexibility to make significant purchases and then repay the amount over time through smaller monthly instalments. Some credit cards even provide the option of interest-free or low-interest instalment plans for a specified period, making it possible for cardholders to plan and budget for larger expenses without straining their household budget. However, remember that you could be hit by late payment fees or high-interest charges if you miss a repayment or fail to stick to the repayment schedule.
Get rewarded for your spending
Some credit cards offer rewards programs that enable you to accumulate cash back, points, or miles for purchases made on the card. In addition to rewards, some credit cards offer extra perks, such as airport lounge access, complimentary travel insurance, rental car excess insurance, and even price protection insurance, which may refund you the price difference if an item you bought with your card decreases in price.
However, rewards-based credit cards typically charge higher annual fees and interest rates compared to standard credit cards. Some of these cards may also have minimum spending requirements to unlock some offered benefits. It's essential to consider your spending habits and lifestyle before choosing a rewards-based card to ensure you don't end up paying too much for benefits you might not need.
Build your credit history
Using a credit card responsibly and demonstrating disciplined repayment habits can help you establish a positive credit history. Paying off your credit card balance in full each month enables you to avoid debt and shows potential lenders that you are a reliable borrower. Responsible credit card usage can also help improve your credit score over time, making it easier to qualify for other credit products, like a home loan or a personal loan.
Could be helpful in a financial emergency
Your credit card could provide you with immediate funds in a financial emergency, be it for a medical bill, car repair, or an unforeseen household expense.
Some credit cards also offer interest-free days, meaning you have a grace period of a few days to settle your balance after receiving your credit card bill. However, you lose the benefit of interest-free days if you don't pay off your balance in full, and you'll be charged interest on the unpaid amount.
Special balance transfer rates
A balance transfer credit card allows you to transfer your existing balance to a new card that typically offers a 0% interest rate for an introductory period. You can use the interest-free period to repay your debt faster without being charged any interest.
However, it's important to note that the interest rate typically reverts to a higher ongoing rate once the introductory period is over. If you're unable to settle the balance within the interest-free timeframe, interest charges will commence, potentially worsening your situation.