Credit cards are one of the most misunderstood things in India. Most of us have been advised by our friends and family not to use credit cards. The reason they provide is: “If you have to use credit card to borrow money and pay back the full amount next month, why not just pay now using your money and stay away from debt. What is the benefit of using credit cards?”
In this post, I’ll explain the benefits of credit cards and will explain you how to use them for maximizing their benefits, and not let them pull you into ‘debt-trap’.
Before starting, lets revise the basics about credit cards in brief. Credit cards are the instruments which you can use to make any purchase without actually using your money. However, you will have to pay the purchase amount back to the card issuing company at a later point. Once the bill is generated, you’ll get some grace period (generally 15-20 days) to pay the dues. If you fail to do so, the company might charge you a late penalty and interest on the amount due.
Benefits of using credit cards?
Now, here are the reasons why you should use a credit card for almost all of your purchases.
Interest free credit: Firstly, using a credit card gives you credit for 10-50 days. So money used by you does not leave your bank for up to 50 days. You’ll get interest on the money kept in your account.
Track your spending better: You will find all the transactions which were done by you in the credit card statement which is not possible with cash.
Improve your Credit score: Credit Proper utilization of credit cards helps building your credit history, which in turn helps you with better chances of loan approvals and get better interest rates.
Rewards/Cashback: You earn rewards and cashback based on the credit card variant you use. This can go as high as 33% on some cards (on selected merchants).
Frequent flyer miles: You get frequent flyer miles of airlines on some cards.
Complementary benefits: With many credit cards, you get free concierge services, complementary travel insurance, fraud protection and other benefits.
Premium benefits: You get premium benefits like Airport lounge access, spa access and memberships such Amazon prime, Netflix, Club Marriott etc with some credit cards.
International acceptance: No worries about currency conversion. Most of the credit cards currently can be used anywhere in the world, with just a foreign currency markup fees.
- Bonus: You can earn rewards on paying the credit card bill too. There are some apps and banks which give rewards on paying your credit card bills through their apps or debit cards. (See below for more details)
An important thing is how to select credit cards and how to use them optimally. I’ll cover these in future posts.
With us so much busy with our jobs on weekdays and partying on weekends, it can be a pain remembering the bill due dates, specially when you have multiple credit cards with different billing cycle. You can use apps like Cred to notify you when the card bill is generated and send you reminders as the due date approaches, or setup auto payments in the app to pay your bill automatically before the due date. You can join cred by clicking below (opens in mobile/tablets only).
Remember, everything comes at a cost, and the cost for availing the benefits of your credit cards is that if you don’t pay the bills on time, you might have to pay heavy interest and penalty which can be much bigger than your benefits. Apart from this, your credit score will go down which makes you ‘credit unhealthy’, and in turn makes it difficult to get approvals for any type of credit in future.
To summarize this post, use your credit card for every purchase you’d rather do using your debit card or cash, and enjoy the world full of endless benefits and rewards. Just make sure to pay the bill before due date and you’ll be good.
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