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Credit cards can give you lots of discounts, reward points and relief from of carrying around cash, unless of course, you don’t use them well
Credit cards are such good things; they enable you to buy stuff even when you don’t have money in your pocket at the moment. This is precisely what also makes them a double-edged sword—they encourage debt. Not just any debt, the costliest debt possible with interest amounts ranging between 36 – 40 per cent per annum.
Well, just like everything else, a credit card also has its share of goodness. If used wisely, it will not turn into the debt demon, which people with negligence make it out to be.
Emergency use. Credit cards were meant to be of help in case of emergencies. They are great, only if you pay your bills on time.
Reward points. All credit card purchases earn you reward points, which can be redeemed after you reach a set limit. The reward point structure differs from company to company.
For example, some cards give you a point for every Rs 100 spent [the amount can vary from card to card]. Obviously, the wise thing to do is to opt for a card that gives you the best reward system.
Cash back. Many credit cards offer cash back when you make purchases above a certain amount at one go. Check if your card offers this feature. If it does, don’t forget to check if the cash is credited back to your account.
Discounts. All credit card companies have tie-ups with certain brands so you get discounts when you buy that brand using your credit card. Keep updated on such brands to avail the discounts.
Interest-free loan. If you pay back the money you spent on your credit card on time, then this becomes the biggest advantage. You are getting an interest-free loan amount from the time you make the purchase to the time you have to pay the bill. Select a card company that can give you the maximum grace period. But always be aware of your billing cycle. This way not only do you not miss out on payment of your card dues but also can take maximum advantage of it.
Credit shield. This is insurance on your card—in case you lose your job due to any reason, the insurance company pays your credit card bills. However, they only cover the minimum payment requirement of the credit card dues.
International travelling. Cards can be handy when making payments on international trips because of the freedom from exchange rate hassles. By swiping a credit card you pay at the official rate, which can be advantageous to you.
Credit history. Credit cards are a very good indicator of your credit history [if you are regular with your payments], which benefits you when applying for loans.
All the above points are advantageous only till the time you pay your bills on time without carrying forward your bill amount. And if you do carry it forward, and keep paying the minimum amount due, only the late payment fee will be waived off. You will still have to pay the interest charged, which is 3 – 3.5 per cent per month.
And your debt keeps continuing from cycle to cycle till you pay off the entire amount or at least a large chunk of it. The trouble with people is that they borrow from one credit card to pay off the amount on the other and keep sinking deeper and deeper into debt. Once you slip into the vicious cycle of credit card debts, you are inviting big trouble.
If you are caught up in sinking sand of credit card debt, here’s a helping hand to get you out.
You should then transfer your outstanding balance to that bank or company. Remember that this does not mean you can then take your own time to pay off your debts. There is a minimum balance limit; which means only if your outstanding balance is of a certain minimum amount, can you transfer the debt. This minimum limit varies from bank to bank. Also, the low rate of interest is for a certain period during which if you do not pay the balance, regular rate of interest apply.
Once you have settled your existing debts, throw away all your credit cards as the first step towards a debt-free life. Or at least don’t go beyond having two.
Follow these simple steps: