Ironically, a ‘credit’ card is often considered as a debt instrument. In India, as of 2019, there were approximately 48.9 million active credit card users.
The consensus rests on the fact that owning this card is a trap. To maintain financial well-being, you must avoid applying for one.
But this isn’t necessarily true.
While the consensus holds some basis, it does not paint the entire picture. The implications of a credit card depend upon its owner – for what purposes do they use it? And how is the after-math handled each month?
This is what this article talks about. As we move across a more integrated economy, with rising costs and technological advancements, holding a credit card is a smarter choice in the 21st century.
Here’s presenting 5 ways you can leverage a credit card to your benefit:
Dodge Interest Penalties
A bank gifts you the freedom (under a set credit limit, of course) to undertake hassle-free transactions each month. What it asks in return is for you to own the responsibility for paying your bills on time.
It’s a fair deal if you think about it. The bank gives you money when you need it; you pay back the bank in fixed intervals.
While an annual fee is required to keep the card active, it does not drill significant holes in your pockets.
The challenge arises when the users either don’t clear the dues in full or avoid paying them in a set month. As with any loan, the bank is obligated to charge you an interest fee for this action. And these interest fees may drain your savings account.
If you want to avoid such additional burdens, it is prudent to pay the due on time. That way, you’re using the card to your benefit without incurring unnecessary costs.
Build Healthy Credit Histories
Credit scores are 3-digit numbers floating between 300-900. The closer your profile skews to 900, the stronger your score and credit profile.
You may wonder, how can this score make any difference in your lives?
The answer is, these benefits are multi-fold. Before unraveling those, let’s look at how you can build a good credit score in the first place.
- Repayment History: Do you pay your dues on time? If you miss them, what is the late-payment timeline and frequency?
- Credit-Utilization Ratio: Whilst a bank provides a generous credit limit to your disposal, it is wise not to utilize more than 30-35% of the same. The reason – it’s relatively easy to cross this threshold, which does more harm than you can imagine.
- Accounts: How many credit cards are registered under your name? How well do you abide by the payment history, collectively?
- Types: Do you have a diversified range of cards for different purposes? If so, how well are those maintained? This factor is insignificant as compared to the ones above, but it is an important element for building a good credit history.
If you meet these criteria, you’re eligible for the following benefits:
- You’re blessed with increased credibility to acquire home loans, car loans, education loans, or any other personal loan.
- Previous credit history gives you the power to negotiate for lowered interest rates and higher credit limits when opening new accounts.
- In the unwarranted case of an emergency that requires a surplus infusion of money, a good credit history improves the probability of securing instant approvals.
Enjoy Rewards and Cashbacks
One major benefit of holding and spending from credit cards is the multiple rewards available for redemption. Depending upon your issuing bank, most of the purchases are accompanied with cashback and rewards programs for the users.
Rewards come in handy as points, travel credits (frequent-flyer credits), complimentary purchases, and discounts. Cashback points may be meager, but they amount to reasonable amounts upon accumulation over 6 months to 1 year.
A caveat to look out for is that users often forget these benefits are eligible under a set timeline. Under this context, they don’t redeem their benefits and often blame it on credit card functionings.
If you’re looking for certain types of benefits, it’s helpful to check their collaboration partners, give-back amounts, and other important criteria before signing-up.
This isn’t all. How does the thought of earning rewards on paying your credit card bills sound?
This is what CRED has to offer. When you pay your bills using their platform, with each transaction, you receive CRED coins and gems to redeem rewards that suit your tastes.
With heavy dues like rents, choosing CRED RentPay gives 45 days of free credit, extra reward points, and a happy landlord. The platform pushes out reminder notifications that help pay your dues on time.
But not everyone gets this membership. The holders with strong credit histories are eligible to reap the platform’s benefits.
Maintain a Tab
While it is convenient to swipe the card for instant purchases, you must maintain a tab of these expenses. The reason you fall into a debt trap is that you’re unaware of the amount you’re going to owe to the bank.
Unfortunately, in this process, the credit card takes a hit on its reputation.
As a responsible cardholder, you must incur the expenses you can afford. While the temporary joy may overpower rationality, it is time to let the latter hold dominance. Financial well-being is maintained when you make sound decisions.
Save your receipts. Use them to verify the statements.
In some cases, however, there are printing mistakes in credit card statements. If you’re acquainted with your expenses, you can make your case to the company. Else, you fall prey to these unintentional errors.
Take Advantage of 0% Introductory APRs
If an expensive purchase is on the cards, take advantage of 0% introductory APRs (Annual Percentage Rate).
Many companies offer a sign-up bonus and waive off interest requirements for set periods. In such cases, what would you prefer? Drawing down on your savings or applying for such cards?
Let’s understand this with an example:
Suppose you’re looking to purchase an electronic product, say, an iMac. You can research offers that best align with your goal and give you a longer 0% APR period.
After applying for a card and making the transaction, avoid using this card for other expenses until you pay off the amount.
Calculate the time left and divide it equally amongst each month. This way, you:
- Are aware of your monthly expenses
- Avoid hefty interest payments
- Unalter your savings reserves
- Acquire promising sign-up bonus points
The more, the merrier. Right?
A credit card has a wide basket of benefits to offer.
These cards are layered with security. If you encounter a theft, the fear of immediate withdrawal doesn’t exist with credit cards. All it really takes is notifying your bank about the incident, and they will promptly put the card on hold.
When shopping online, every payment getaway asks for an OTP (One-Time Password) for identification purposes. If done in person at stores or restaurants, the transaction goes through only when you chip in the right password.
Moreover, credit cards are universally accepted. No matter where you are, you can make your purchases with a single swipe of your card. To get the best exchange rates for international visits, you should opt for a credit card rather than exchange money at expensive institutions, like airports.
If you’re eligible for balance transfers, you can save interest and the hassle of managing payment stubs on accounts of large volumes of transactions. Balance Transfer, in simple words, is transferring debt from one credit card to another. This doesn’t mean that your debt is waived off; you’re just shifting its location for making the payments.
Make a Smart Choice. Take the Right Step Today.
We hope this article cleared your apprehensions and misunderstandings of owning credit cards.
Sure they are equivalent to loans. And can get tricky to use. But the key to dodging the trap is to be vigilant with your spending.
Pick the bank that best aligns with your requirements and financial capabilities. Study every offering and shortlist your picks based on interest rates, credit availability, rewards programs, and grace periods.
Given the fast momentum of our lives, owning and wisely using credit cards can eliminate the hassle to arrange for money in our day-to-day lives.
Define your needs. Control your expenses. Take the step. Apply for a credit card.