Using Credit Cards for Small Purchases: Benefits and Disadvantages
Using credit cards for small purchases is on the rise. Not so long ago, people preferred cash and debit cards for minor payments and credit cards for larger payments. Obviously, because it is more probable that you don’t have hard cash for a big purchase whenever needed. A survey by a Bankrate site, however, shows that while the two modes remain most popular for payments not exceeding $5, credit cards have gained on them over the last year.
Their increasing ease of use makes credit cards almost a no brainer. But what are the actual benefits and shortcomings of this mode for under $5 payments?
Advantages of Using Credit Cards for Small Purchases
Convenience of Using Credit Cards for Small Purchases
The convenience of cards is undisputed. With credit cards, you just fish it out and swipe. There is no bother of going around looking for ATMs. Paying with credit cards is also fast; you need not delay the check-out cue counting out loose change.
Safety With Using Credit Cards
Using a credit card affords you better consumer protection privileges than any other form of payments. Some issuers offer you a money-back guarantee even when the store won’t accept a product return. More importantly, Credit card transactions are better protected from fraud by the Fair Credit Billing Act. The law caps your responsibility at 50 dollars if you have a genuine dispute concerning a credit card payment.
Carrying a credit card around is also much safer than having cash on you. If you lose money, chances of getting it back are small, but a credit card can be easily canceled.
Bonus Reward Earnings by Using Credit Cards for Your Small Purchases
Utilizing credit cards every day guarantees users with plenty of rewards, ranging from loyalty points to cash back. Small payments that would normally be done with loose change earn you points redeemable on a rainy day. The accumulation is implicit, as the points per individual purchase are too little for a significant withdrawal. This encourages you to ‘forget’ them until the day you need them.
Using Credit Cards Help When You are Cash-Strapped
No matter how your bank account is set up, there is a possibility that sometimes you will find yourself cash-strapped at a wrong time of the month. Could be you have money in a locked account that you can’t access at the moment. Or you could have checks that are yet to mature. A credit card can be your savior at such times. By essentially allowing you to spend money that you do not have, credit cards help you cross this deep sea safely.
Using Credit Cards can Help With Financial Tracking
Paying with credit cards is an easy way to keep track of your spending. Unlike cash payments that will require you to maintain receipts at hand, credit card history is easy to retrieve. This is especially beneficial if you need to provide some accountability records of your spending.
Using Credit Cards Boosts Credit Score
If you pay your due credit on time, credit card use could grow your credit rating. In this age, this is a valuable asset to have. Big credit purchases are obviously better in improving your FICO score, but they don’t come often enough. Using credit cards for little daily payments, however, offers a steady growth. Small credit purchases are easier to repay, therefore, minimizing the risk of bad credit. They are also almost passive; you do not feel them, but their long-term effect is amazing.
Timely payment also means you don’t get charged interest on your credit.
Limited Money Use
Some issuers limit the amount of purchases you can use your credit card for within a single month. This is good for your financial discipline, as the credit card helps you spend within your means.
Disadvantages of Using Credit Cards for Small Purchases
Many Small Purchases can Quickly Add to Debt Accumulation
At the end of the day, a credit card is a debt. The ease of spending with a credit card in hand often makes you forget this though. The swipe and go option gives you the impression that you are not spending. Losing track of spending is a common credit mistake. The real crunch bites when it is time to pay back though.
Late payments lead to accruing of interest, which accumulates your debt and sucks you deeper in the debt trap. This can ruin your credit score. If your credit is healthy at the time you take out a card, it means the limit for your card is considerably high. A healthy credit score now may not necessarily say that you are free to spend heavily. You could be having plans, which require you to cut down on spending. A credit card, however, encourages you to flout this discipline, especially with small payments that appear to make insignificant dents on your credit balance.
No third party control When Using Credit Cards
Despite the many warnings from your issuer, there is always the possibility that you will give your credit card to a third party. Maybe send a spouse or other relative to make a purchase. With cash, it is possible to count out the exact amount you intend to give them. With a credit card, however, you are giving them that and much more. If you are not strict enough, they might end up spending more than you intended them to.
Hidden costs of Using Credit Cards for Small Purchases
The convenience of using credit cards carries with it some implicit costs. There is usually a surcharge when you pay using credit cards. The credit card fee is usually small and often listed in a remote area if you get a receipt print out. It will thus often appear insignificant, but at the end of the day, it is a charge. The multiplicity of small payments increases the incidence of such charges. The annual fee charged by many credit issuing companies often is not taken into account when using credit cards.
Should Using Credit Credit Cards for Small Purchases be the Norm?
Credit cards have played their part in money revolution, and have squarely taken their part. They are quickly becoming the norm even for small payments, making them difficult to avoid. It is not all gloom though, as they carry with them numerous benefits. However, it is important to always keep in mind when using credit cards that this is your money. You want to avoid bad credit card habits. Financial discipline is essential if you are to use credit cards for small payments; otherwise, you inevitably sink into a financial crisis.
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