We can all roughly imagine what credit cards are. Small plastic cards that are always mistaken for checking cards. Credit cards are often used as a secondary means of payment after the checking card. Credit cards are often issued from the house bank to the checking account. Annual fees and other fees for credit cards are not uncommon. The question that many are now asking is whether a credit card is worth it at all.
Today we will show you the circumstances under which a credit card makes sense and when you can do without the credit card. However, to understand the context, let’s first look at the purpose of using credit cards and their properties.
What are credit cards primarily used for?
Credit cards are used to overcome short-term financial bottlenecks, to pay flexibly and securely abroad or to buy consumer goods that cannot be afforded. Some people also use credit cards to collect bonus points to redeem them later for various services. Prepaid credit cards are also popular means of payment for young people.
Credit card properties
- Make cashless and secure payments worldwide
- Optional cash withdrawal
- Different forms of billing (charge card, revolving card, prepaid card)
- Interest-free period for revolving cards of up to 2 months
- Interest will be charged for partial payments
- Inexpensive means of payment abroad
- Safer than cash
- Financial reserve
- Flexible repayment options
- Bonus programs and additional benefits such as travel insurance are often included
- In Germany, the cost of withdrawing cash is often higher than with a checking card
- An additional foreign currency fee is charged for some credit cards
- Some credit card providers charge an annual fee
- The easy access to money increases the risk of overindebtedness through additional consumption
When is a credit card useful?
When traveling: If you travel a lot, a credit card is a must. Above all abroad, the credit card helps to avoid unpleasant liquidity problems. The fact is that your checking card is not accepted everywhere. Therefore, if you keep a credit card in reserve, you will avoid being suddenly out of money. Withdrawing ATMs is not always possible with a checking card. Therefore, if you are leaving, make sure that you have a credit card with you with the cheapest possible international fees.
For young people: Young people can also benefit from the advantages of a credit card. With the prepaid credit card, children and adolescents can make cashless payments worldwide without the risk of indebtedness. The prepaid credit card is loaded with credit, which is used up if necessary. Prepaid credit cards are also a good start for young people to learn how to use money before they buy a real credit card.
For the compensation of short-term bottlenecks: Credit cards can also be used to compensate for short-term bottlenecks in order to avoid reminder fees and interest on arrears. Here, however, it also depends on the type of credit card. While the credit card amount for a charge card is automatically deducted from the checking account at the end of the billing period (usually at the end of the month), you pay your credit card amounts in installments with a revolving card.
With the third option, depending on the credit card provider, you will be charged high interest. It is definitely advisable to set up your own financial reserve to avoid using the credit card for this purpose.
Do the credit card bonus programs pay off?
This mainly depends on the type of your purchases and your lifestyle. Some credit cards offer travel insurance for trips abroad up to 90 days. Others offer various advantages with airlines if you pay your bills with the appropriate credit card. A credit card with bonus programs is worthwhile if you also regularly use the advantages of membership.
When it comes to travel insurance coverage, be sure to check the insurance terms. Find out in advance which damages are covered by the insurance and whether and to what extent a deductible will be charged.
When is a credit card not suitable?
If you are always struggling with liquidity problems, you should avoid using credit cards. If you are easily influenced by advertising and always consume, the risk of debt when using credit cards is very high. We advise you to use the credit card as a flexible secondary means of payment and rather not to use the function as a financial reserve.
It is best to put three to four months’ salary into a call money account and use this money to overcome short-term financial bottlenecks. This way you avoid taking out a loan at high interest rates.
For most people, free credit cards (no annual fees) with cheap fees when used abroad are therefore more than sufficient. You always have a reserve with you to be liquid abroad. Use our credit card comparison to find the best credit card for you.