The word ‘credit’ is generally associated with someone resorting to pay later for his spends. While the same is certainly acceptable in a commercial transaction, someone doing it for personal expenses reflects the tendancy of an individual spending more than what his pocket can afford. Such a tendancy is indeed disastrous for someone’s financial health. On similar lines, instead of seeing it as money management tool, credit cards are generally seen as a financing instrument in India to spend for expenses to pay later.

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However, people are still reluctant to use credit cards for their routine transactions due to its vulnerabilities to fraud and misuse. People indeed have lost money in such frauds, but most of the cases are attributable to negligence on part of the users. Further, with a pre-sanctioned limit with normally zero collateral security, it allows access to more funds than what our earnings are. While this can be a positive factor in the case of emergency, spending more than the incomes is always dangerous.

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Inspite of these negatives, here’s how credit cards can be used for all the advantages and benefits they offer:

  • Interest-free Credit Period – While credit cards are generally one of the highest interest cost loans, credit cards typically allow a credit period of 15 to 45 days from the date of transaction before they charge any interest. Within that payment window, the amounts paid remain as interest-free credit. Using this credit facility for our routine expenses can infact be a great money management practice.
    Let me use some figures to help you understand. Assuming you have monthly expenses of Rs. 15,000 which you pay through credit card instead of using debit card. Even if you pay the credit card dues well within due dates, you stand to gain around Rs. 900 per year just by using credit card, by earning interest for the money lying in Savings Account in the meantime. Earning money with no extra effort, howzzat!
  • Building Credit History – Credit card usage helps in building credit history and paying credit card dues timely results in a high credit score, thereby helping get easy access to bank credit in case one needs to borrow money later e.g. car loans, housing loans etc. This is due to the fact that credit card usage and payment history is reported to the credit information bureaus. Payment records through debit cards don’t help in building credit history.
  • Joining Bonus – Many banks offer joining/ signup bonus to incentivise people to apply for their credit cards. This is done to increase the customer base. However, it indeed feels nice to get some freebies for just applying a card, ofcourse using a credit card has its own advantages as explained above. I just received a Rs. 1000 bookmyshow.com voucher yesterday as a signup bonus. So, movie anyone?
  • Usage Perks – Different credit cards offer cashbacks/ reward points for usage at different websites/ stores. So, depending on the type of credit card you hold, you stand to gain 0.25%-10% on your payments through the credit card as per the offers running at that time. It’s not that debit cards don’t provide such incentives, but it has been generally seen that credit cards are incentivised more than debit cards.

However, using credit cards to our advantage, it is also imperative to use credit cards responsibly and more importantly, pay credit card dues on time. I resolve to do that. Will you?

Check out the A2Z of Personal Finance here.

12 thoughts on “Credit Cards – A Boon or a Bane!”

  1. I always wanted to read about this credit card n m unaware despite using it. Thsnks for clarifying this topic

  2. Read the post 🙂
    Being a commerce stream students your posts are of great importance to me .
    Well written the perks and disadvantages.

    The way you ended movie anyone ?and savings of 900 were hit for me .

    Keep writing .
    Good luck ,waiting to see next posts .

    Visit my blog too 😉
    @dixita011 from
    Cafenined words

  3. Hi Simarjeet, I am more of a Debit card person and very rarely do I use my credit card. Your info was very up todate and relevant. Thanks for sharing 🙂
    @KalaRavi16 from
    Relax-N-Rave

  4. No matter how enticing the marketing is, credit cards are not designed to add to my life. They only subtract from them in a big way. The problems that debt creates also distract us from the one thing the Bible says we do owe to others: love.

  5. Hello Simar, for the longest time I was principally against the concept of a credit card considering that it stood for spending more than one’s means. I got one this year when I realized the perks associated with it – the cash pack and points etc..
    Now am a proud Regalia card owner and I love it when It lets me walk into Jet lounges and all..
    I think you are doing a great job with this unique topic … all the best for the challenge..

  6. I would like to add one more point here, If the usage of Credit cards are done in a rationalized manner than absolutely it works as a tool for smart savings and budgeting. However sometimes the actual value of a product which we want to buy appears small because we just have to swipe the plastic, If such is the case try to pay through cash. An example would be paying 2000 INR would be painful if we pay it by cash than swipe.

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