Most of us know what credit cards are: those small plastic cards that are always confused with the standard current account bank card. Credit cards are often used as secondary payment methods instead of the regular payment card. You can usually request a credit card from the current account of your home bank. However, it is not uncommon for additional annual fees to be charged for the use of credit cards. The question that many people ask themselves is whether a credit card is worth it at all.
Today we show you under what circumstances a credit card makes sense and when not. To better understand the context, we first discuss the purpose of using the map and then review the features.
What are credit cards primarily used for?
Credit cards are used to solve financial problems in the short term, to pay abroad flexibly and securely, to easily make online purchases or to purchase consumer goods on credit. Some people also use credit cards to collect bonus points and redeem them later for different services. With some cards you also have the option to save ‘air miles’ (travel credit), with which you can book flights for free. Moreover, prepaid credit cards are often also popular payment methods for teenagers, due to the built-in payment limit.
Features of credit cards
- Make payments worldwide safely and without cash
- Possibility of withdrawing cash (PIN)
- Different forms of settlement (traditional credit card, prepaid card)
- Interest-free period up to 21 days
- Interest is charged if the balance is positive
- Favorable means of payment abroad
- Safer than cash
- Financial reserve
- Flexible repayment options
- Bonus programs
- Additional benefits such as travel insurance are often included
- In the Netherlands, the costs for withdrawing cash are often higher than with a regular debit card.
- For some credit cards, additional costs are charged when you pay with a foreign currency
- Some credit card companies charge an annual fee.
- Easy access to money increases the risk of excessive debt through extra consumption
When is a credit card useful?
En route: If you travel a lot, a credit card is a must. Especially abroad, the credit card helps to prevent unpleasant liquidity problems. A common problem is that your normal bank card is not accepted everywhere. So when you keep a credit card in reserve, you prevent that you suddenly run out of money. It is also often not always possible to withdraw from ATMs with a normal debit card. That is why it is important that you always have a credit card with you when you leave the country. Make sure you take the credit card with the lowest possible foreign costs.
For young people: Young people can also enjoy the benefits of a credit card. With the prepaid credit card, children and young people worldwide can pay electronically without running the risk of debt. Moreover, nowadays young people make a lot of their purchases online. An additional advantage is that online purchases with a (prepaid) credit card are processed easily and quickly. The prepaid card is supplemented with credit, which can be used up if necessary, without the possibility of going ‘in the red’. Prepaid credit cards are therefore also a good way for young people to learn how to handle money before they purchase a ‘real’ credit card with credit.
For absorbing short-term financial bottlenecks: Credit cards can also be used to compensate short-term bottlenecks. With the available credit you can cover accute costs. In this way, expensive reminder costs and overdue interest costs are avoided. However, this depends greatly on the type of credit card. While with a conventional credit card the credit card amount is automatically deducted from the current account at the end of the billing period (usually at the end of the month), you cannot go ‘in the red’ with a prepaid credit card. So if you want the option to cover certain costs with the help of temporary credit, you will have to opt for a classic variant. You will be charged a high interest rate, plus a hefty fine,Please note, however, that you always repay the outstanding debts within the interest-free period.
It is therefore certainly advisable to set up your own financial reserve to absorb unexpected costs, so that you do not have to use the credit on your credit card for this.
Are credit card bonus programs bearing fruit?
This mainly depends on your purchasing behavior and lifestyle. Some credit cards offer travel insurance for trips abroad up to 90 days. Other cards offer the possibility of saving ‘air miles’ with which you can book flights for free and gain access to exclusive lounges in airports around the world. A credit card with a bonus program is definitely worth it, on condition that you also make regular use of the benefits of membership.
Regarding travel insurance coverage, it is important to carefully check the insurance conditions. Check in advance which damage is covered by the insurance and whether and to what extent an excess is charged.
When is a credit card NOT useful?
If you regularly have to deal with liquidity problems, you should avoid using credit cards as much as possible. If you are easily influenced by advertising and you quickly feel the urge to consume a lot and often, the risk of debt is very high when using credit cards. We therefore advise you to use your credit card as a flexible secondary payment method and to avoid the use of credit to cover unforeseen costs or to make (unnecessary) purchases as much as possible.
The safest option is to put three to four months of salary in a separate account and only use this money to solve short-term financial problems. This way you avoid taking out an expensive loan with high interest costs to compensate for the situation. Read everything about a financial reserve here.
For most people, free credit cards (without annual contributions) with low costs for use abroad are more than sufficient. This means that you always have a reserve to be sufficiently free also abroad. Use our credit card comparison to find the best credit card for you and your situation.