Yesterday I was having a good discussion with my colleagues in the office about Credit cards. Some people who participated in the discussion were credit card haters. But the conversation ultimately ended up concluding that credit card is a great utility if used wisely. I would like to highlight some points from the discussion along with the benefits of using a credit card. I’m going to keep this article in a positive way explaining the positive aspects of a credit card. This doesn’t mean that Credit cards are always good. There are also some negative aspects which maybe I will discuss in a different article.
Why do we need a credit card?
This is a common question that everyone will have in their mind. A credit card has lots of benefits which we will be discussing in this article. But before we start, we have to first understand why we need a credit card. Every individual who is working will definitely be making expenses every month based on their needs. Digitalization is growing everywhere as we see. Many places have now started to use digital payment methods instead of cash payments. In India, recently there was also a news about RBI imposing a ban on Cash on Delivery option when we purchase anything online. This is a great move by the Indian government. So, anyways we are going to buy something using cash method or debit cards. Using credit cards can give you many benefits instead of making the payment just a normal one. There are different types of credit cards available based on the need of a person.
- If you use your card a lot for fuel, you can buy a card that benefits you when you fill fuel for your vehicle.
- If you are someone who purchases a lot of groceries, a grocery card can help you get more rewards and cashback.
- There are credit cards suitable for frequent travellers where you get Resting lounge facilities in the airport.
Some of the great benefits that we have in using a credit card are listed below:
When you make a purchase using your credit card, a part of the amount that you spent using your credit card will be given back to you in the form of cashback rewards. These cashback rewards can be redeemed as a credit in your card itself. With the spends that I make, I’m able to easily make a minimum of Rs 500 every 2 months just for using the credit card. If I had been using cash or debit card as my payment option, I would have missed the rewards. There are also some special outlets available supported by your credit card vendor. These special outlets provide you more cashback. In a way, the card vendors show these attractive cashback offers in front of your eyes and make to purchase more than what you actually require. That is when you have to be very careful. We should not end up purchasing something just because we have good cashback offers. We have to first think if we really need that or not and then purchase it if we really need it.
Reward points are similar to that of cashback offers. Instead of providing you cash for your transactions, the card vendor provides you reward points. These reward points can be used to purchase some attractive items from their store. In some cases, these reward points can also be used to pay your utility bills every month. Reward points differ from one card to another. Based on the card that you are holding, the reward points you get will also vary. If you have a privilege card for which you pay an annual rent, the reward points that you accumulate by using those cards will be really high. Not just rewards points but the card will also come to you with other benefits as well.
Some cards provide you Easy EMI option without any extra payment. EMI is nothing but an instalment option where you will be able to may the payment for your purchase in the form of instalment. The card vendor will pay the full amount to the merchant and you will have to pay the card vendor every month. The EMI options are available in both ways where you will have to pay the interest for the tenure or you get the option to pay in instalments without any interest. If you really need something and you cannot afford the whole cost, you can use this instalment option and gradually pay the amount every month to the card vendor. I buy most of my items only by an Easy EMI method. If the cardholder and merchant provide me with an instalment option where there is no need to pay any interest, I will always go for it without any hesitation. By doing this I’m able to have enough liquid money in hand for my other expenses every month. And the burden of paying lots of money for getting something will also be reduced.
Special offers are usually provided by both card vendors as well as merchants. If you visit some websites like Amazon, Walmart, eBay etc, you will be able to see some offers exclusively for credit card payments. These offers are due to a tie-up between the card vendor and the merchant. They will also have a minimum purchase requirement for which the offer will be applicable. By doing this, if you had wanted to buy a beard trimmer from Amazon, you end up buying a fridge just because you have a 10 % cashback offer if you purchase with your credit card. This is a wonderful marketing strategy. A neat advice for existing credit card holders and new card users is that it is not always mandatory that you have to buy something with your credit card just because there is an offer. During my initial days, even I used to get tempted to these offers and spent lots of money on thing that I really didn’t want to buy.
The credit limit feature in credit cards is another interesting concept. For the card you hold in hand, you will be given a credit limit. You will be able to make purchases only within this limit. If it goes beyond the limit some card vendors extend the credit limit and some card vendors restrict the payments. The great advantage that a person has in using a credit card is that they can make the purchase now and pay later. In every credit card, there is a 45 days period where you can buy today and make a payment for it in the next bill cycle. If your purchase is near the end of the current bill cycle, you will be billed immediately. But as soon as you are billed, you will still have more than 20 days to pay your bill. A credit limit is a feature in which you will be allowed to make purchases for the amount that you really don’t have. This is not a wise choice but you have options. If you think you can manage to pay it back to your card vendor, you have absolutely no problem in using the entire credit limit every month. You also have options to use your credit limit to buy something and convert it to EMI to pay as an instalment. Based on your credit limit you will also be able to take loans. This can help you maintain a good credit score by solving your loan needs without affecting the credit score.