What is a credit card.
Billing of a credit card.
Let’s move on to advantages & disadvantages of credit cards.
- 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.
- 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.
- 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.
- 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.
- 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.
- Universally accepted : Unlike debit cards which work only in the originating country, credit cards can be used anywhere in the world.
- 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.
- 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.
- 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.
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.