Wednesday, February 6, 2013

Advantages And Disadvantages of Borrowing Credit

Indeed, when we are dire in need of a lifeline and we don't know where to get money to pay our due expenses, borrowing credit is the best way to solve our problem. However, as everything has a positive and a darker side, borrowing credit is no exemption.

Benefits of Borrowing Credit (a. k. a. Getting Money That is Not Your Own)

1. Spend Whenever and Wherever

You don't have the physical money in your wallet, in your bag or even in your bank account. But you have the purchasing power to buy anything you desire. This can be anything--TV, gadgets, refrigerator, an entire new wardrobe, a car, a house! You can even loan money to start your dream business.

2. Safety Not Carrying Cash

The advantages of using a credit card is overrated. For one, it's safe (you don't need to bother about robbers who will steal your cash or handbag). You can terminate the credit card at once with just a call reporting the incident to the bank or credit card institution. You will only carry one small and thin plastic card!

3. More Income

More income will come to your hands if you know how to circulate and make more money by investing in some profitable business. With a workable strategy, you can earn more than your active income supplied by your day job. For instance, you can borrow credit and build a small store near your house. Sell snacks to your neighbors and generate enough money to pay your debt and get more in return.

Cons of Borrowing Credit

1. Supporting Your Expenditure

Credit as a supporter of your expenses can be a good thing. But this is also a double-edged sword. Some people (and I hope it's not you) cannot resist the temptation to maximize their credit limit and NOT pay the borrowed amount afterwards.

Worse is when the credit limit is reached in one credit card, they start to use another credit card and spend as much as they want--without thinking about the consequences: lowered credit ratings and punctured credit report.

2. Interests Incurred in the Balance

When you are not paying the due amount of credits for a specified and agreed term period, you will be charged with interests. And further, these interests will grow while you are not clearing the debts out. More costs are added to your expenditure that you should not be paying for.

3. Change in Interest Rates

Be sure to read the credit card terms and agreement before signing on the dot. There are some credit card companies which impose the right to change your credit card limit and respective interest rates at their own discretion. When such thing happens, they will send you a notification mail to your address. Change in interest rates is not a good sign as it will be shown in your credit report that you are a risky borrower. Oftentimes, this is marked when there are lots of late payment and defaulted repayment.

Key Takeaway

Ultimately, the best advice you can take away is to use your credit card only when REALLY necessary. Else, credit cards would be contributor of major trouble than good support. If you enjoy this article, visit my other blog to read for more posts related to credit and other financial advice.