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Credit Card - An instrument to Save More

Credit Cards are an extremely useful instrument for making payments. Apart from being convenient they can go a long way to save one's hard earned money by getting additional discounts and cashbacks. No wonder credit card usage is increasing year on year. As per Worldline India Card Payment Report 2014-15, the credit card base grew at 9.8% in FY15 with a total spent of Rs 1.9 trillion using credit cards. Moreover number of transactions per card is also on the rise with 2.7 transaction per card per month in 2015 from 1.3 in 2011. The reasons for the high usage clearly lies in its advantages

Advantages of Using Credit Cards

  1. Convenience

    Credit card is plastic money which can be used at most places in place of cash. Thus using credit card keeps you out of the hassle of keeping too much cash in your wallet. Moreover credit cards can also be used to pay utility bills like electricity payment, mobile - DTH recharge etc online which is not possible by cash.

  2. Interest free credit

    Credit cards provide you interest free credit for around 20 to 51 days which helps you manage your expenses well.
  3. Online Shopping

    Credit cards are very useful in case of online shopping. Many websites don't give cash on delivery option so only options you are left with are credit or debit card and even if they do have cash on delivery(COD) option, they give you get additional discount/cash back for not using COD.
  4. Reward Points

    The credit card companies give reward points for every purchase using card. These reward points are equivalent to cash which can be redeemed against some items/goods or plain cash in some cases.
  5. Cashback

    Apart from reward points, many credit card companies offer cashback ranging from 5% to 20% on spends done on one or more categories like dining, grocery shopping, flight booking etc. Depending on your spending pattern and usage, you can choose which card suits you best and apply for the same.
  6. Special Exclusive Deals

    In order to lure customers, credit card companies provide exclusive deals both on online and offline on credit cards from time to time which help users gets additional discounts. Such deals can get huge savings to the user.
  7. Payment through EMI

    Nowadays credit card companies are allowing users to buy expensive products like mobiles, refrigerators, TV etc on EMI. Though they charge some additional amount for this facility, user gets the benefit of making payment for the purchased product in a span of 3-12 months and in some cases even upto 24 months thus reducing the burden on his pocket. This is a great advantage as instead of waiting for a couple of months to save the money to buy an essential item one can buy it immediately and make the payment over a few months.
  8. Record keeping

    One of the not so evident advantage of credit card is record keeping. Credit cards help the user keep a track of his spending and thus helps him being more organized in future. At a click of a button he can find out his expenses in a given period and can plan ways to manage them better.
  9. Emergency Fund

    Credit cards can come very handy at the time of emergency. At such a time user might not have enough time to collect his cash from various accounts and use of credit card can buy him some time to make the required arrangements. Also credit card gives the user the ability to withdraw cash but since the interest rate is very high this facility should be used only during emergency.
  10. Foreign Transactions

    Credit cards provide convenience of making transactions in foreign country without worrying about the currency. Though this facility comes at a cost, it gives user some time before he can arrange cash/new credit card in a foreign country
  11. Build Credit History

    A proper use of credit card can help you in establishing your credit worthiness and thus having a good CIBIL score which would be helpful in getting loans in future.

Despite the above advantages people are apprehensive about using Credit Cards because of the cons they have.

Disadvantages of Using Credit Cards

  1. Whopping Interest Rates

    The interest rate on credit cards is as high as 36% much higher than any other instrument for taking loan. Hence if you miss the due date of payment even once, you'll lose whatever you have saved in years and much more. Thus only responsible people who can ensure to make the payment on time should use a credit card.

  2. Promotes Impulse purchase

    Since credit cards give the user an ability to purchase even if he doesn't have enough money in his/her account, at times he is tempted to purchase stuff which he might not have purchased otherwise.

  3. Risk of Fraud

    Credit card or its number/pin might get stolen which can lead to frauds. Earlier a signature which could easily be copied was sufficient to prove one's identity for using a credit card ,nowadays one needs to enter the pin at the point of sale to prove his identity. This is an additional security measure to avoid frauds. A credit card user needs to be agile and alert to ensure that he doesn't by mistake give away his pin to anyone even to waiters at restaurants or shopkeeper and rather enter it himself so that there are less chances of its misuse.

  4. Debt Trap

    The shopping freaks who lack self control quite often tend to use credit cards for purchases beyond their ability to pay. In such cases the high interest rate accrues debt month over month which cannot be repaid through their earnings. This kind of debt trap is difficult to escape.

  5. Hidden Charges and Fines

    Apart from high interest rates on outstanding there are other charges which people tend to overlook. Some of these are fee on withdrawal of cash, penalty on exceeding credit limit, late payment fines, renewal fees etc . One needs to be cautious and read the document carefully before using the credit card.

How to make best use of credit card

  1. Never spend more than you can pay.

  2. Always pay the full due amount and not just minimum as rest would attract huge interest.

  3. Keep a proper track of due dates, if required set reminders.

  4. Keep those cards that provide maximum benefit on the kind of purchases you do most in a month eg a frequent diner should keep a card that gives maximum discount on elite restaurants.

  5. Keep only those number of cards which you can handle, not more than 3 to 4.

  6. Keep a credit limit which is not way beyond your monthly usage, this would keep a check on your expenses and would also limit the potential loss in case the card is stolen.

  7. Keep a track of your monthly expenses to manage them better.

  8. Avoid impulse buying, use credit card only for necessary purchases.

  9. Do not share your credit card number or pin with anyone.

  10. Read the credit card document properly to check all terms and conditions before applying for the card.

  11. Use credit card wherever possible to get maximum reward points.

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