Credit Card : Boon or Bane

 

What is a credit card?

So basically, there two cards we are familiar with first is debit card and second is credit card. Every bank account holder has a debit card but some holds a credit card too. A debit card is a card that deducts money from your bank account every time you use it. But credit car does not deduct money from your account but it gives a quick loan for a shorter period to repay this amount to the bank within a prescribed limit which is usually 40 to 50 days. This period of 40 to 50 days is totally interest free and you don’t have to pay any amount to use this money. But every credit card has a credit limit. Every credit card holder has a different credit limit which is decided by a bank based on your income level, credit score and other criteria.

Disadvantages of credit card

(1)  They promote impulse buying

When you see something, you like you wanted to buy it but you could not afford at the moment or you don’t need the thing right now but you buy it because you have a credit card. You can take a loan and you don’t have to pay it immediately, so you buy it immediately. Credit card push further this kind of impulse buying because you don’t need to worry paying these bills right now and you can pay them later whenever you want to.

(2)  They put you in a lot of debt

Whether you use it wisely or without any rational thinking it really doesn’t matter. Using these credit card will put you in a lot a debt. And the interest rate of these debt is very high compare to other loans you take from bank.  Interest rate of home loan is around 8%, Car loan interest rate is around 10%, personal loan interest rate is around 12%, but the credit card interest rate is between 24 to 42% per annum. If you pay the money to the bank within a billing cycle than you don’t need to pay any interest but if you delay payment just for one day than you have to pay interest not just for one day, but starting from the day you made the transaction. Then you have to pay the interest for 51 days not just 1 day.  Furthermore, late payment charges will be applied and you have to pay 18% GST on the overall interest accruing.

If you make a new transaction before paying off this old amount, then this new transaction won’t have any interest-free period and it’ll start attracting interest from Day 1.

(3)  Credit cards can spoil your Credit Score

A credit score is a 3-digit number ranging from 300 to 900.This score is used by banks, credit card companies or even insurance agencies to decide whether or not to offer you credit card and what interest rates would be. In India, there are some of the bureaus that keep track of our credit scores like CTRIF, CIBIL. For taking a loan from bank or applying for credit card etc. you must have a good credit score. But if you don’t pay you credit card Bills on time you credit score will go down. You can keep track of your credit score through apps like CRED which allows you to manage all your cards at once place and even rewards you every time you pay your bill on time.

(4)  Minimum due period

It is one the major disadvantages of a credit card. credit card due time is 45 to 50 days to pay amount with zero interest. This period is very short and credit card holders most of the time fails to pay their bills on time. As a result, they have to pay high interest rate and late payment charges also. A lot of credit card holders, mistake the minimum due amount for the total credit card bill amount and do not pay the bill amount in full.  This type of negligence cost them a lot, the credit holders think that the actual amount is low and eventually end up spending a higher amount and pay higher interest charges.

(5)  Hidden Charges

Credit card companies show you the perks of having a credit card, but they never told you about the hidden charges. A Credit Card have a number of taxes and fees, such as late fees and processing fees. Not paying the bill on time can result in high penalty and higher interest charges, it also can lower your credit score.

(6)  Can Become a Victim of Fraud

In this advance technology it becomes very easy to clone a card and gain access to confidential information through which a person can make purchase on your card. A card holders must be aware of this fraud. Check your transaction detail if something looks suspicious inform the bank as soon as possible, so that the bank could take an action. Informing the bank immediately can benefits you because if the fraud is proven the bank will waive the charges so you will not have to pay the for the transaction or purchase charge by fraud.

 

 

 

 

 

Advantages of credit cards

(1)  Universal Acceptance

Credit Card are universally accepted. You can travel anywhere; with a credit card it will be accepted everywhere. From travel expanses to paying for food, hotel stays in any country these cards accepted in every place of the world. So having a credit card will let you travel free without worrying about cash.

(2)  Discounts, cashbacks, and other rewards

The advantages of credit cards extend to discounts on entertainment and dinning outlets, travel, shopping apps, etc. it also gives the benefits fuel surcharge waivers at petrol pumps across the country.  These credit cards also give you some rewards points every time you make a transaction or paying the bill. These points are easily redeemable and gives you some benefits.

(3)  You Can Track your Expanse

Credit Card statements are a great way to track your expanses of every month since it provides you with an itemized account of your expenditure. Credit Card records each purchase made through the card, with a detailed list sent with your monthly credit statement. These can be very useful when you need manage your budget for any other purpose.