The Benefits and the Problems of Credit Cards - Essay Example

A famous French poet once said, ‘It is only the poor who pay cash, and that not from virtue, but because they are refused credit.’ The term credit has different meanings for different people. For the poor, credit is delaying payment not out of choice but from necessity. For the rich, credit is a means of delaying payment for an item simply because the opportunity exists to purchase several resources without the use of cash transactions. For the business man credit is the chance to provide persons with resources without immediate payment whilst gaining extra income for the customer’s delayed payment. Credit therefore can be an advantage or a disadvantage. It depends on whose eyes you are using. In today’s information age the main method for receiving and allowing credit is the credit card. This essay will focus on how the credit card has evolved as well as its benefits and disadvantages.  Today the credit card has become popular all over the world but does is it hold equal benefits for all its users?  The piece of plastic called a credit card issued to customers by a Bank is used to make payments for various exchanges. It operates through a system of borrowing money. The customer gets to purchase items immediately and repay the bank at later date. The system of exchanging goods on credit for a card began since the late 1800s. By early 1900s oil companies and department stores gave out individual cards call ‘proprietary cards’. These businesses created these cards to improve customer loyalty and customer service (Gerson and Woolsey, 2009). The interest in cards soon spread to the other industries and in 1946 John Biggins presented the first bank card to be used in America only. It was called ‘Charg-It’. Four years later, the Diners Club introduced a cardboard card to be used for travel and entertainment purposes. It was the first credit card to be used on a large scale. All the same, the balance on this card had to be paid in full at the end of each month. Plastic made its first appearance in 1959 through the American Express. Although MasterCard came on board in the same year and changed the way in which their customers paid off their credit cards American Express did not change their method of payment until 1987. MasterCard allowed their customers to have a ‘revolving balance’ (Gerson and Woolsey, 2009). Therefore, 1959 marked the beginning of flexible payment but also the beginning of finance charges for customers. In 1966, credit cards were now accepted for the payment of a variety of purchases and in 1967 Barclays launched the first credit card in the United Kingdom. From this time the bank card industry grew at a rapid rate. Presently, more than fifty percent of all transactions in the United States of America and the United Kingdom are made on credit cards. This explosion of the use of credit card came about because of the seeming benefits to the customers. One of the most important features for all users is that people can pay immediately for the things they need. For all users but especially for the poor, the credit card offered a quick and easy help in times of medical and other emergencies. People now had access to a certain amount of money for dealing with unexpected costs. In addition people were able to pay for large purchases, such as furniture, electrical appliances, electronics and even precious jewels. What is more is people were given up to 56 days to pay in full before accumulating interest. Imagine the joy these 56 days gave to individuals who live from pay check to pay check. The supporters of credit cards suggest that users could now manage their purchases more than before as all the purchases made on these cards are listed on written or online statements. Not only did users find it easier to keep track of their purchases via the credit cards statements but they could also organise their budgets. They could observe their expenditures in detail and therefore eliminate those expenditures that were causing them to stray from their budgets. In short, credit cards have given convenience, flexibility and safety to its users. Credit cards have made it easier and safer to buy things when the rich do not want to carry large amounts of cash with them. Companies that do not accept cash purchases such as as bookings via the Internet have benefitted from the explosion of the use of the credit card. The poor have a chance to buy essential items when the actual cash is unavailable. The explosion of the use of the credit card in almost every country in the world has tremendous benefits for all its users. However, can these benefits make up for the problems that are connected to the credit card at present? Firstly, in today’s information age credit cards data can be stolen easily over the phone, or from a web site. All users have to be cautious about how and where they give out the information on their cards. If a rich person’s credit card information is stolen they stand a chance of losing a great deal of money quickly. Likewise, the poor may not have much credit but if stolen the little that they have on the card would become a nightmare for their daily living. Credit cards encourage people to spend more money that they have and although this would mean more money in the hands of the businessman and the banker the poor becomes poorer and the middleclass move to the poorer class if they lack the control over their spending. Control over spending is vital for all users but especially for the poor because most credit cards do not require you to pay off your balance each month. For example, even if a user only has $100 on the card, he/she can still spend up to $500 or $1,000 on purchases. Interestingly, this delay in paying off the balance would result in relatively high rates of interest compared to loans and other financial transactions. This means that if users allow interest to accrue, the cost of using credit cards can become overwhelming. For all users but especially for the middle class and the poor this could produce enormous debt and even bankruptcy. In conclusion, the benefits and the problems of credit cards are different for each user. It all depends on the eyes of the beholder. They can make life easier and be a great tool for ease of purchase yet if they are not used wisely they can become a financial burden. Especially during emergencies having access to finance that would otherwise be unavailable makes the credit card a lifesaver but at the same time it causes all budget plans to be thrown out the window. This is a problem for all users but it is outright dangerous for the poor who can soon be in too much debt. Although the credit card statement allow consumers to observe their purchases and regulate and manage the budget making only the minimum payment will mean paying large amounts of interest, and mean a much longer repayment time. High interest rates, increased debt and credit card fraud are harmful to all users. Thus, a useful alternative to credit cards are charge cards. These cards allow the user a number of days of free credit, but the consumer must pay off the full amount at the end of each month. This system would ensure the consumer does not end up paying enormous interest. This card has gone through several stages before becoming the piece of plastic that we now know as the credit card. The jury is still out on the benefits and the disadvantages of this card that we seemingly cannot do without. References Credit Card Sense, 2003. A History of Credit Cards. [Online] Available at: http://www.cardsense.co.uk/credit-card-history.htmlThe history of credit cards [Accessed 10 June 2011]. Gerson and Woolsey, 2009. The History of Credit Cards.[Online] Available at http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php Read More