How to use credit card to an advantage


Many times credit card is considered an evil as it results in overspending and getting into a debt trap. But there is also a positive side to it if it is used intelligently, rationally and with proper calculations. Let us talk about the pros of having and using a credit card in this article. Please note this article is not meant to mislead the readers to use a credit card. The aim is just to tell some good points regarding it.

Introduction

Nowadays credit cards have become so common that every bank wants to sell more and more credit cards to the customers. You must be aware of the number of phone calls you get from different banks regarding taking their credit card. The general perception about the credit card is that it is risky to use as there are chances of customers missing the bill payment due date and paying fine and interest later. Interest charges for nonpayment of credit card bills are very high, it is about 3.35% of outstanding amount plus tax per month. There is also a possibility that people with a credit card will tend to spend more than they earn and get into debt. So overall it is advisable to use a credit card only to a limited extent and when really needed. A lot of things are heard regarding abuses of a credit card so this article will not talk about them. But if a credit card is used after proper analysis and with due care then it can sometimes be of help. Let us discuss below how can using credit card be beneficial at times.

Pros of using a Credit Card

  1. Interest free period : Imagine that you need to buy something urgently and you are running short of funds. But you are expecting that you will get money in few days when your salary comes. You have two choices here, either you postpone your expenditure or you take a personal loan. Now taking a loan will never be interest-free even for short period of 15 days. But if you are possessing a credit card with some credit limit then you can use your credit card to make your purchase and pay the amount later. In credit card transactions you get maximum of 50 days interest-free period to clear your outstanding amount. The number of days you actually get depends on your transaction date as well as your statement date. Hence you get some time to manage money in this interim interest-free period.
    This interest-free period will be anywhere from 20 to 50 days depending on your billing cycle and date of the transaction. Sometimes if users intelligently plan their purchase based on this then they can get maximum interest free period. Take for example that your credit card monthly billing cycle is from 6th of the previous month to 5th of the next month. This means that your credit card bill for the previous month will be generated on 5th of next month and all your transactions in this period will be billed in the statement. Due date of bill payment is 20 days after the credit card statement generation date. So in this case, the due date will be 25th of the month. Now suppose that on 2nd July you intend to make some purchase which is not very urgent. So if you are able to postpone your purchase to after the credit card bill generation (5th July) then your transaction will get billed in next cycle, since on 5th July your bill has already been generated with payment due date of 25th July. This way if you buy on 6th July you will get 30+20=50 days of the interest-free period. But if you would have made your purchase on 2nd July you would have got an interest-free period of just 22 days. So this way you can plan your purchases and maximize your interest-free period. It gives the flexibility to purchase now and pay next month. This can come handy when you have a lot of expenses already planned for the current month and you do not have the bandwidth of any additional purchase. So, on one hand, you are able to make a purchase and at the same time, you are getting the flexibility to pay for it next month.
  2. Cash back offers & Discounts : Sometimes in online shopping and also in stores, there are offers running which offer some cash back or discounts on using particular companies credit or debit card. So if you are having credit cards of those companies, you can avail these offers and save some money. Sometimes we also see these offers running for online travel ticket bookings.
  3. Emergency expenses : Having credit card sometimes proves to be a boon during the time of unforeseen expenses like medical emergencies etc. During such times sometimes we may not have sufficient funds in our bank accounts and need some time to arrange for the money. So having a credit card of one or more banks with sufficient credit limit saves you at this time and you can make the payment on an urgent basis and then try to arrange the funds in the interest-free period you get before the credit card bill payment due date. Imagine in such a situation if you do not have a credit card what would you do? You will have to call up your friends, relatives etc then and there and it is very difficult to get the money on the spot.
  4. Reward points : Most of the credit card companies offer reward points to their customers for every credit card transaction done by them. Normally they give 1 or 2 reward points for every Rs 100 spent. One reward point will roughly be 25 paise. Although it seems a meager amount if accumulated over a long time can add up to a noticeable amount and redeemed for cash. Hence customers can choose to use their credit card for most of their transactions which accept credit card and then finally pay the bill together when the statement is generated. This will give them the benefit of accumulating rewards points and avail cash redemption later.
  5. EMI conversion : Almost all the banks provide the facility of converting the transactions of about Rs 3000 and above into EMI at some rate of interest. Hence, customers, have the flexibility convert their bigger purchases into monthly EMI for 12 to 36 months if they wish to do so. Also here any kind of purchases can be converted to EMI with the exception of fuel and gold purchase transactions.


A word of caution

Though above points can be utilized to extract some benefits out of the credit cards it requires a huge discipline on part of a user to manage it. If you are using your credit card regularly and not careful and alert then there are chances that you will miscalculate your monthly expenses, forget the bill payment due dates, tend to overspend etc and land yourself into trouble. It often happens that when you pay by credit card you often tend to forget that expenditure as nothing gets deducted from your bank account balance at that time. Suddenly it comes to you as a surprise when the bill gets generated next month and you are in for a shock. Hence if you are using credit card careful planning of expenses is very necessary. You need to regularly track your credit card bill periodically and keep an amount aside for credit card bill payment and consider that while calculating your monthly expenses.

Conclusion

So we see that credit card is not a necessary evil and its intelligent use does help us to reap some benefits. Having a credit card of 2 to 3 companies do comes to rescue sometimes during the time of unexpected sudden financial expenses. There are many credit cards which are lifetime free and hence keeping a credit card with you does not do any harm. But care should be taken that it is not misused and overused without assessing your capacity to clear its dues. All your expenses decision should be only made on basis of your income and not on basis of your credit card limit or the number of credit cards you have.

By concluding let me tell you one thing. Try to use the credit card but it is at your own risk and decision. This article does not promote the use of credit card in any way.


Comments

Author: DR.N.V. Srinivasa Rao28 Mar 2018 Member Level: Diamond   Points : 2

The credit cards are good for a wise user. If the user plans his purchases basing on the resources available and then uses the card it will be good and profitable to him. But as we have a credit card go on purchasing the items without planning the funds will lead you to huge interest amount. You can use a debit card only when there is money in your account. Similarly, if you consider your credit card also as a debit card and spend accordingly, you need not worry about repayment and you will get some time for paying the money wherein you are gaining the money in the form saving on interest. A credit card is like an interest-free debt for a period of 45 days. So don't purchase as you have a credit card. But purchase only when there is a requirement and use the credit card by seeing the money in your bank account. That will give you a good advantage,

Author: Umesh07 Apr 2018 Member Level: Diamond   Points : 4

Now a days many credit card companies are offering credit card on lucrative terms. There is even no annual fee for some of them.

Using the credit card cautiously is the way to take its advantages and by timely payment of monthly bill one can avoid the penalties or late payment interest. Another important thing to note is that those who keep some significant balance in saving bank account need not to go for the credit card. They can manage their payments etc with the help of debit cum ATM card which is generally issued to the saving bank account holder.

Nowadays people, especially businessmen, keep multiple cards with them in order to be sure to do their transactions in case one card fails due to some reason. For such people keeping a few credit cards as well as a few debit cards in their wallet is a common thing. So having or not having these cards (credit or debit) is basically as per the need of the individual.



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