Many in the nation frown upon making purchases using a credit card. However, people tend to utilize their credit card to purchase gifts, food, flight tickets, etc., for numerous reasons. Some people do not like the idea of using their credit card and resort to spending cash or utilizing their debit card. The question therefore arises, is it damaging or advantageous to use your credit card to make mundane purchases?
To be fair, credit cards can attract unwanted debt if used unwisely, and society does its part of shunning away these plastic cards by emphasizing on its destructiveness. This often leads people to believe that there cannot be any good that comes out of owning a credit card. On the flipside, it must be acknowledged that the high rates of interest and the obsessive need for the millennial generation to purchase goods and services that they don’t really require from their credit card have indebted quite a few people around the world. This should not be overlooked, but the fact is that if you use your card wisely, it can be beneficial to even make mundane purchases on them. In many cases, check more here it can be more beneficial to be using your credit card instead of using hard cash or even a debit card.
Mentioned below are a few benefits of using your credit card
Ease of use – A credit card is easy to use and is convenient in the sense that you can use money you don’t have to make purchases. If the spends are paid off on timely basis, it can be extremely favourable to use a credit card.
Low rates of interest – Contrary to popular belief, credit cards do not always attract a high rate of interest. If you pay off the spends on your credit card on a timely basis, you pay little to no interest on your credit card. The rates of interest depend on the type of card you have chosen, but in general, the longer you take to pay off your debts, the more interest you will be paying. This is so because credit card companies usually charge interest on a monthly basis.
Purchase protection – Most credit card companies will resolve disputes incurred on a purchase you made using your credit card. For example, if you’ve bought a defective product that a seller is unwilling to take back, just call your credit card company and they will resolve the issue for you, in most cases.
Sign-up bonuses – The majority of credit card companies provide you with various gifts upon availing a credit card. This is compelling all credit card companies to provide sign-up bonuses to stay alongside their competition. However, one must not opt for a card with a high rate of interest simply because it comes with an Amazon voucher worth Rs.500.
Reward points – Credit card establishments are getting creative with their rewards to cope with the intense competition in the credit market. Cashback and reward points are amongst the most common offers that credit companies offer. In essence, reward points are accumulated in your card for every purchase you make and this can be redeemed for various items, vouchers, offers, etc., including cashback offers.
Safety – In case of a fraudulent use of your credit card, you can simply contact your credit card company to reverse the payment, whereas this is not possible with a debit card.
Improving your credit score – A credit card may act as a platform that can help you reform your bad credit score caused due to bad credit behaviour. Using the card wisely by making timely payments can help improve your credit score within months.
Debt transfer – Some credit card companies allow you to transfer debt from one credit card to another. This can be beneficial if a credit card company offers a substantially low rate of interest when compared to another card company.
EMI facility – Most retailers and e-commerce sites allow you to convert the purchases made from your credit card into Equated Monthly Instalments (EMI). This allows you to pay portions of a spend for a specified tenure at a reasonable rate of interest on monthly basis.
Tips to ensure you use your credit card wisely
Being cautious about using your credit card will eliminate the ill effects associated with it. Some tips to ensure you use your credit card wisely are mentioned below.
Understand the terms and conditions – Before availing a credit card, ensure that you have read the terms and conditions along with the interest rates the company charges. Do not resort to blindly grabbing a credit card simply because a company is offering you one.
Ensure you’re capable of paying back - If you are incapable of paying back more than a certain amount, ensure you do not overshoot this budget, unless it is an emergency. It is important to make timely payments on your spends. This will not only avoid high interest rates, but will also maintain a good credit score.
Maintain a healthy credit utilisation ratio - Ideally, your expenses on your credit card should not surpass 40% of your total credit limit. This too will help maintain a healthy credit score, and also helps in simplifying the repayment process.
Opt for EMI – If the merchant has an EMI option, it would be a wise choice to opt for this, unless you are planning to pay off the spend within the grace period that doesn’t charge you interest.
Avoid impulsive purchases – Avoid impulsively purchasing using your credit card. If you’re not in the right frame of mind, dig into your pocket for hard cash to estimate how much you can afford to spend to momentarily elevate your mood.
Make timely card payments – Do not miss your credit card payments. Not only will this ensure your debts to be cleared off faster, but this also promotes good credit behaviour, which in turn provides you with a good credit score.
Even though owning a credit card can attract debt, it can be beneficial as well. Following the steps mentioned in this article can be the difference between indebting yourself and associating yourself with a valuable credit dispensing technology. So don’t be afraid to use your credit card, but be wary of misusing it.
This article has been produced by TNM Marquee in association with BankBazaar.