Are Credit Cards Good or Bad?

What is a credit card.
A Credit card is a payment card issued by banks and comes with a pre-approved spending limit (credit limit). The credit limit is based on the user’s income and credit score(credit score ranges from 300 to 900, the higher the better). Unlike debit card, which uses your bank balance for payment , credit card uses the credit limit , so your bank balance remains the same.
Billing of a credit card.
Every month a credit card statement is generated by bank which states all transactions done using the card. Some key informations to be noted on credit card statement are total amount due , minimum payment due, payment due date & statement generation date as shown in below snapshot. 
Summary of these informations is given below.
Total amount due is the sum of all transactions done for the billing cycle(time between statement generation dates). 
Minimum payment due is the minimum amount you need to pay to bank. It should be notes that paying minimum due will attract interest on pending amount and not paying minimum amount will attract late payment penalty and reduce your credit score.
Payment due date is final date till which the due amount has to be paid, failing to which can lead to late payment penalty and reduction in credit score.
Statement generation date is date when the credit card statement is generated. All transaction after this date will be accounted in next month billing cycle.
Let’s take an example to illustrate the use of the above mentioned parameter.
Suppose bill generation date for a credit card is 18th of every month. 
An amount of 10,000 was spend till 18th of this month and 5,000 was spend on 19th and the due date is 5th of next month. So total amount that needs to be paid by 5th of next month  is 10,000 and not 15,000.  So, this means you get interest free period of around 15  to  45 days

Let’s move on to advantages & disadvantages of credit cards.

Advantages : 
  1. Rewards : Credit cards give discounts and incentives like cashbacks and reward points for e.g flipkart axis credit card gives 5% unlimited cashback on transactions done on flipkart. Almost all credit cards give discounts on flight ticket bookings.
  2. Credit score : Using credit card helps in building credit history and hence credit score. A good credit score can get you high credit limit and low interest loans.
  3. Airport lounge access : Many cards such as  SBI prime credit card provide lounge access on airports. We all know how expensive food items are on any airport, so buffet with minimal(20-30 rupees) to no cost is a sweet deal.
  4. EMI payment option : Most credit cards give you EMI payment option with major merchants which comes very handy while making big purchases. Some merchants provide no-cost EMI option where merchant bears the EMI interest fee.
  5. Insurance cover : Many credit cards have insurance cover free of cost for e.g. Yatra SBI Cardholder(s) is entitled for an air accident cover of Rs. 50,00,000 by the New India Assurance Co. Ltd. In the event of accidental death arising out of Aircraft, schedule Airlines etc.
  6. Universally accepted : Unlike debit cards which work only in the originating country, credit cards can be used anywhere in the world.
Disadvantages : 
  1. Impulse buying : Now that you have higher purchasing power , chances are you will start impulse buying the things you wont need which will lead to financial burden later.
  2. Interest rate : Many people just pay off minimum due amount which attracts interest rate of 2-4% per month which is super high. Just for the sake of comparison, interest rate for savings accounts are somewhere around 3%. Also, note that the interest is calculated from the date of transactions and not from the payment due date.
  3. Costs : Many credit cards are not free to use and charge joining and renewal fee. There are some hidden charges as well for e.g. late payment fee, tax on interest. Most people think that no cost EMI costs no extra amount, but there is a catch. In no cost EMI purchases, merchant gives discount of EMI interest which bank charges. It should be noted that there is gst of 18% on interest amount which is not paid by merchant, so no cost EMI does come with some cost.
Conclusion :

Credit cards used with discipline can be very helpful, if not, then you can be in debt trap with poor credit score. Also, managing multiple cards can be painful, so i would recommend you to use CRED app which automatically checks credit card statements , sends reminders, let’s you pay all credit card bills at one place and give incentives on top of that, download it from here. After joining with the link , CRED will give cashback of 2% ( upto 1000 ) on 1st credit card bill payment through CRED.

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