Credit cards - Hell yeah!
Why you should (and should not) use Credit Cards
Last year, I wanted to go for a movie with a friend (before the lockdown). I opened the BookMyShow app, and booked two tickets at PVR.
My friend asked me how much he owed me, and I said “115 bucks”.
He was shocked. How did I book a movie ticket at PVR for 115 rupees?
Here's how - I had a credit card that had a “Buy 1 Get 1” offer on movie tickets. So I paid 230 rupees for 2 tickets.
I think you'll guess where this post is heading. But it's much more than that.
Having a credit card is actually a boon. Here's a list of benefits that you get with a credit card:
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Now, continuing our conversation, here are the benefits of using a credit card:
Offers, like I mentioned above. Discount on movie tickets, Flipkart and Amazon sale discounts, cashback offers on select cards and a lot more - today all credit cards have some or the other offer on them.
Reward points: All credit cards give you certain points on purchase of any item. Once sufficient number of points are accumulated, these can be redeemed for gifts or discount coupons. I know of someone who was a heavy credit card spender, and was able to accumulate enough reward points and buy an iPhone 6, only with the credit card points!
Here's what is the most important feature about credit cards, but also highly ignored - emergency spends. If you are a salaried individual and have a sudden expense that has come up, and don't have enough money in your bank account, the credit card can be used to make that expense and you can repay the money once you get your salary. I know people who have paid off their medical bills using a credit card, and received a claim on their expenses later because they had a mediclaim policy. In the absence of a credit card, for a medical emergency, if you don't have a CASHLESS facility available, you'll first have to pay the hefty hospital bill and then claim reimbursement. Which means if you don't have enough money in your account to pay the bill, you'll have to beg borrow or steal (okay not literally, but you get the point). Credit cards help for such emergency expenses. You don’t need to worry about arranging funds like this.
Lastly, in the worst case scenario, a credit card can help you convert a transaction to EMI. However, DO NOT use this feature unless absolutely required, because here comes the caveat - a credit card carries high interest rates, for EMIs and otherwise too.
Credit Cards are awesome as long as you pay the dues on time. But the minute you delay payment, or pay only the minimum amount, the bank charges you massive interest!
The interest charged on partial payment is anywhere between 1.5% to 3.5% per month, which means on an annual basis, you'll be paying anywhere between 18-40%, which is insanely high!
Yes, just paying the “minimum amount” which they write on the bank statement, will attract high interest, and you'll pay through your nose! The interest is charged on ALL transactions for the current statement as well as the next statement, until you pay the bill.
So for example, if your current statement was for transactions from 1st January and the bill was generated on 30th January with a due date of 15th February - if you pay anything less than the due amount due by 15th Feb, you'll be charged an interest on ALL transactions, on pro-rate basis, from 1st Jan till the date you pay the full amount. And this would be charged on your current statement (January) as well as the subsequent statements, until you pay your credit card dues IN FULL.
The calculation is a bit complex, so we won’t get into that. If you want to see an example, you can read the article here.
In short, DO NOT fall for the trap of paying the minimum amount due or missing the bill due date for your credit card. Which is why, it’s best to set up standing instructions with the bank for your Credit Card payment.
Essentially, as long as you pay your credit card bills on time, they are one of the best financial instruments that each one of us MUST own, for various reasons. But if you’re not disciplined enough and end up spending more than your income, my advice would be to stay away.
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