Should You Use a Credit Card for Everyday Purchases? Know its Advantages And Disadvantages

Credit cards have become an increasingly popular form of payment in recent years, with millions of people using them for their everyday purchases. These cards offer a range of benefits, including rewards points, cashback, and the ability to use an EMI facility instantly. However, while credit cards can be a useful financial tool when used responsibly, they can also cause significant damage to your financial health if used recklessly.

This article elucidates the benefits of using a credit card for everyday purchases, how using a credit card for everyday purchases can damage your financial health, as well as provide tips and strategies for using credit cards responsibly and avoiding the pitfalls that can lead to financial trouble.

Using your credit card for everyday purchases can have several advantages:

1. Convenience: Hassle-free, Cashless Transactions

Using a credit card can make your everyday transactions more convenient and hassle-free. You don't need to carry cash, and you don't have to worry about running out of money. You can simply swipe your card or use contactless payments to complete your transaction quickly and easily.

2. Savings: Earn Cashback or Rewards on Your Everyday Purchases

Many credit cards offer cashback or reward points on your everyday spending, which can help you save money over time. For example, you might earn 1-2% cashback on groceries, gas, or dining out. Over time, these rewards can add up, helping you save money on the things you buy everyday.

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3. Protection: Purchase Protection And Extended Warranties on Selected Items

Most credit cards offer purchase protection, which can be helpful if you need to dispute a transaction or return an item. For example, if you purchase an item that is defective or doesn't work as advertised, you can file a dispute with your credit card issuer to get your money back. Additionally, some credit cards offer extended warranties on certain purchases, which can provide extra peace of mind.

4. Credit Building: Improve Your Credit Score with Responsible Credit Card Use

Using your credit card for everyday purchases and paying off your balance on time can help you build your credit score over time. A good credit score can make it easier to get approved for loans, credit cards, and other financial products in the future. It can also help you get better interest rates and terms when borrowing money.

Here's how using a credit card for everyday purchases could damage your financial health:

While by taking advantage of rewards, purchase protection, and other benefits, you can save money, build your credit score, and make your everyday transactions more convenient and hassle-free, using a credit card for everyday purchases could damage your financial health in several ways.

1. The Temptation to Overspend:

One of the primary benefits of using a credit card is that it allows you to make purchases without having to immediately pay for them out of pocket. However, this same benefit can also be a drawback, as it can make it easy to spend more than you can afford.

Credit cards can create a false sense of purchasing power, leading to overspending that can quickly add up. When people use a credit card, they may not feel the same impact of their spending as they would with cash or a debit card, as the money does not get deducted from their bank account immediately. This can be particularly problematic when people use credit cards for everyday expenses, such as groceries, gas, or entertainment, as these expenses can quickly accumulate.

The temptation to overspend is one of the main reasons why using a credit card for everyday purchases can be damaging to your financial health. While credit cards can be a convenient way to make purchases, it is essential to be aware of the potential risks and to use credit cards responsibly to avoid overspending and accumulating high interest debt.

2. Less Awareness of Spending Habits:

When you use a credit card, you are not physically parting with your money, which can make it harder to keep track of how much you are spending. With cash or a debit card, you can see exactly how much money you have and how much you are spending in real-time. This can make it easier to stay within your budget and avoid overspending. However, with a credit card, you may not realise how much you are spending until you receive your bill at the end of the month. By that time, it may be too late to make adjustments to your spending habits.

Using credit cards for everyday purchases can make it easy to lose track of what you've spent, especially if you are not keeping a record of your transactions. This lack of awareness can lead to overspending, as you may not realise how much you've spent until it's too late. Furthermore, if you don't have a clear understanding of your spending habits, it can be difficult to make informed decisions about how to manage your finances.

To avoid the pitfalls of reduced awareness of spending habits, it is important to stay on top of your credit card spending. You can do this by regularly checking your credit card balance and transaction history, setting a budget for your spending, and tracking your expenses in a budgeting app or spreadsheet. By staying aware of your spending habits, you can avoid overspending and make informed decisions about managing your finances.

3. Interest Charges And Fees:

When you use a credit card, you are essentially borrowing money from the credit card company, and you will need to pay interest on that balance if you do not pay it off in full each month.

The interest rate on a credit card can be pretty high, often ranging from 11% p.a. to 45% p.a., or even more, depending on the card and your credit history. If you carry a balance on your credit card, this interest can quickly accumulate, making it difficult to pay off your debt. This can be especially problematic if you are using your credit card for everyday purchases, as these expenses can add up quickly.

In addition to interest charges, credit card companies often charge other fees, such as late payment fees, balance transfer fees, cash advance fees, and annual fees. These fees can be significant and can add up quickly if you are not careful. For example, a late payment fee can be as high as Rs 500 or more, which can be a significant amount of money if you are already struggling to make ends meet.

To avoid the risks associated with interest charges and fees, it is advisable to pay off your credit card balance in full each month. This will help you avoid paying interest on your balance and other fees. Additionally, you should be aware of the terms and conditions of your credit card and the fees associated with it. If you are considering using a credit card for everyday purchases, make sure you understand the costs involved and factor those costs into your budget. By being aware of these risks, you can make informed decisions about how to manage your finances and avoid getting into debt.

4. Risk of Credit Damage:

Your credit score is a critical factor that lenders consider when determining your eligibility for a credit card or a loan and what interest rate to charge you. Using a credit card recklessly can damage your credit score and make it harder to access credit in the future.

If you do not make your credit card payments on time, this will be reported to the credit bureaus, which will negatively impact your credit score. Additionally, if your credit utilisation ratio is high, it suggests that you may be at risk of defaulting on your payments.

Using a credit card for everyday purchases can also be a red flag for lenders, as it suggests that you may be living beyond your means. If you are using your credit card to pay for basic living expenses, such as groceries or utilities, it may be a sign that you are struggling financially. This can be a warning sign to lenders, who may be hesitant to lend you money or may charge you a higher interest rate.

To avoid the risks of credit damage, you need to use your credit card responsibly. This means paying your bills on time, keeping your credit utilization ratio low, and avoiding using your credit card for everyday expenses unless you can pay off the balance in full each month. By using your credit card responsibly, you can maintain a good credit score, which will make it easier to access credit in the future at favourable interest rates.

To conclude:

It is advisable to not use a credit card for everyday purchases if you are not financially disciplined, as it can further damage your financial health. When used recklessly, a credit card can be a curse rather than a blessing in times of need. To prevent the careless use of credit cards that could harm your financial health, it is crucial to utilise them carefully and develop healthier credit card habits.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.