The use of the credit card among consumers as a loan arrangement with banks has tremendously grown in recent years, especially in developed economies with advanced banking systems.
However, many people still associate credit cards with erroneous spending that could push the individual to onerous levels of personal debt, extremely high interest rates and other hidden charges, as well as the possibility of getting blacklisted from the banking system due to outstanding loans (Barrett & Gow, 2014). While the majority of consumers in developed economies approve and subscribe to the use of credit cards, the sceptics prefer to refrain from taking loans in favour of traditional payment methods and systems such as bedit cards. Nonetheless, the truth is that while refraining from loans may have its benefits, the consumers subscribing to the use of credit cards are better off in comparison to individuals opting to desist from loans.Consumers using credit cards are usually afforded the convenience of making purchases whose amounts exceed the cash balances in their accounts with the promise to pay in the future, a benefit that clearly may not extend to individuals shunning loans. Notably, for consumers wishing to immediately buy certain goods and services but lack the money at the moment of purchase, the credit card system enables such purchases for limited interest rates charged on the payment of the loan in the future (Gurusamy 2009). On the contrary, consumers refraining from loans might never enjoy the convenience of purchasing beyond their current payment abilities because of the unwillingness to access credit. As such, the use of credit cards confers to the consumer a greater purchasing ability in comparison to consumers at similar levels of earning who shun loans.
Additionally, in relation to security and the liability that may arise from credit card theft and unauthorized spending, credit cards users are better off than individuals refraining from loans. Individuals shunning credit cards might be tempted to subscribe to other payment systems such as cash and debit card payments that expose them to higher risks of theft and unauthorized spending of their checking accounts and cash balances. However, Arnold (2008) notes that the liability laws enacted in many developed countries pertaining to the theft and unauthorized spending from credit cards afford consumers holding credit cards increased protection from the risks of extremely high spending by fraudsters and other forms of credit card fraud. For instance, credit card subscribers in the United States are protected by the Consumer Credit Protection Act from the risks of overspending on their credit cards by fraudsters (Pollard & Daly, 2014). Therefore, greater government interest in the credit card system has increased the security and reduced the risk of credit card usage in comparison with the use of traditional payment systems.Finally, the popularity and depth of credit card systems in many developed economies also confer consumers with the benefit of cheaper goods and services in comparison with individuals refraining from loan payment system.
Consumers who prudently use their credit cards might benefit from price drops on some items and services due to price protections on credit cards. In addition, according to Arnold (2008), consumers who maintain high credit scores and favourable credit reports also have the advantage of raising their possibilities of getting lower insurance premium rates than their counterparts who favour cash and traditional payment systems not pegged on the loan system. Therefore, in the modernistic banking system, the economic benefits to consumers using credit cards are immense.In sum, the difference between the benefits of subscribing to credit cards versus shunning loans are reflected in the overwhelming numbers of individuals obtaining and using credit cards in developed economies.
The desire of governments to keep banking systems in close control has resulted in greater support for the credit card payment system, making credit cards a wholemark of many financial systems in the West. Nevertheless, even as the enthusiasm surrounding credit cards and other loan systems soars, there is need for consumers to exercise immense caution in spending to avoid falling into unnecessary debt.