More than 50% of people nowadays have a credit card. Nevertheless, debit cards and cash continue to gain popularity over credit cards. In 2015, 50% of purchases were settled with a debit card, 49.5% were paid in cash and only 0.5% were paid with a credit card. If you compare the advantages of a credit card with those of a debit card, the credit card wins brilliantly and it seems incomprehensible that we do not all pay massively with this piece of plastic. With a good credit card promotion and positive credit card reviews, you even get it completely free for the first year!
BENEFITS OF A CREDIT CARD
1. Purchases are automatically insured for 180 days to a year
If you pay in a physical store or a webshop with your debit card, the products are not insured. If you drop your brand new camera, you pay for the costs yourself. However, if you have made the payment with a credit card, you can claim automatic insurance. This insurance also applies to business purchases made with your business credit card. Are you a student? Even then it is possible to enjoy all credit card benefits. There are special credit cards for students.
2. Delivery guarantee
If you order something in a webshop, you automatically have a delivery guarantee. If your order is not delivered or you receive a counterfeit product, for example, the credit card company reverses the payment and you, therefore, pay nothing.
This also applies to a holiday that you have paid for with your credit card. If the travel organization goes bankrupt, you can claim a refund.
3. Worldwide ease of payment
Abroad you can not pay everywhere with your debit card, while with your credit card you can even go to the most remote island. Not only can you pay for your drinks with it, but you always have ‘money’ in your pocket in the event of calamities. Are you going on holiday soon and don’t have a credit card yet? You can always apply for a credit card urgently. Your new card will be shipped within 24, so you can enjoy all the benefits of a credit card during your holiday.
4. Credit card can serve as a deposit
If you book a hotel room or rent a car, you are obliged to pay a deposit. With a credit card, you do not have to put this amount on the table in cash. The rental company or the hotel will reserve an amount on your credit card that serves as a deposit. When returning the car or checking out at the hotel, this reservation of the deposit will be canceled. When renting a car, keep in mind that the limit on your credit card is high enough. If you have also paid for your flight tickets with your card that month, part of your limit has already been used. In that case, there may no longer be enough space for the rental company to reserve the entire deposit.
5. Credit option
If you have to make a large purchase and you do not have enough money in your account at that time, you can pay with your card and refund the purchase in installments. If you own a credit card for such a one-time large purchase, you do not have to take out a loan from your bank. Keep in mind that the interest you pay is high. Incidentally, you will only pay interest when the usual payment term has expired and you have chosen to pay in installments.
This credit option does not apply to prepaid credit cards.
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DISADVANTAGES OF A CREDIT CARD:
1. Annual own contribution
The convenience of a credit card comes with a price tag in the form of an annual contribution. Before you purchase a credit card, it is important to first check with your bank whether there may be a free credit card in your package. If not, compare all credit cards to make the right choice. This way you avoid an unnecessarily high annual contribution.
2. Susceptible to fraud
If you have lost your credit card, it is a piece of cake for the finder to make online purchases with it or to pay with it at restaurants, shops, etc. As long as no PIN is requested, the finder can go about his business without any problems. The credit card companies are available 24 hours a day to report the loss of your card. Once the credit card is blocked, no payment is possible.
The credit card company keeps an eye on your card, as soon as they suspect fraud, they take measures.
3. High interest on the outstanding balance
These interest costs amount to a maximum of 12% above the statutory interest rate and can therefore rise to 15% with a regular interest rate of 3%. This is high knowing that a regular interest rate for personal loans and revolving credits is between 8% and 11%.
4. High cash withdrawal fees
Do not use your credit card as a replacement for your debit card, withdrawing cash with your card is expensive. Per withdrawal, you pay up to € 10 in transaction costs. If you do this several times a month, you will lose a few hundred euros per year. If your balance is insufficient to withdraw money with your regular card, the temptation is probably great to use your credit card. Be careful with this! Once becomes twice and before you know it it’s a habit.
5. Debt accumulation
If you have multiple credit cards with the possibility to repay in installments, you can buy items with any card up to your limit. You may not be able to pay them all at the end of the month with the great danger that you will build up debts. Sooner or later you have to pay off those debts and with an interest rate that can reach up to 15%, that is a heavy burden.
PREPAID CREDIT CARD – THE ADVANTAGES, NOT THE DISADVANTAGES
So there are also quite a few disadvantages to a credit card. If you want to benefit from all the advantages of a credit card but do not feel like the disadvantages, choose to buy a prepaid credit card. With a prepaid card, you benefit from the free insurance, delivery guarantee, and worldwide ease of payment and you can also use it as a deposit. However, because you have to deposit the money yourself in advance, you do not have to be afraid that you will make debts and you keep full control over your money affairs.
The prepaid credit card is also suitable for people who do not qualify for a regular credit card because of their income. For example, students can also enjoy all the benefits of a credit card.