credit cards are fascinating financial tools that lend immense purchasing power to the cardholders with unmatchable security. a report by Medianama suggested that India had 44.2 million credit cards in operation as of December 2018. customers have increased their reliance on credit cards, thanks to lucrative offers and rewards.
while credit card provides reliability and convenience, it’s important to address the potential risks associated with them. the additional charges weigh heavy on the users, and they often find themselves receding in a debt trap.
through this article, we'll take you through some important factors that you should consider before you swipe your credit card.
having a credit card can be overwhelming, especially when you start spending. most credit cards offer interest-free credit for a brief tenure which gives scope to unplanned spending as well. the pleasure of unconscious spending often makes you forget about its repaying plan. this eventually will add up to your financial burden. thus, it would be wise to budget your expenses before you go out and spend all that money.
offers & promotions
most credit card providers offer certain promotional schemes with cashbacks and reward points. such offers can be discounts at restaurants, movies or other cashback programs. while they could be very tempting to the naked eye, it is always advisable that you go through these offers with a keen eye to ascertain whether these offers are beneficial to you. only once you are convinced with all the terms and conditions, should you proceed.
cash withdrawal charges
most credit cards come with a cash withdrawal facility. while this is convenient, there is always the underlying fine-print associated with it, thus making it important for you to go through and fully understand charges before utilising it.
credit card bill payment & credit score
a credit score is essentially a 3-digit number that measures the health of your debt and repayments. it is an indication of how responsibly you repay all your dues. if a cardholder fails to make the credit card bill payment on time, it can impact the CIBIL score negatively. if an individual’s credit score isn’t good enough, it can lead to the rejection of bank loans. while in many countries a good credit score often leads to a better lifestyle, in India you will notice that bank loans come at cheaper interest rates and easier application.
check free credit score on CRED.
EMI payment option
every credit card has the option of repayment through EMI. when you have made a high value payment, this option might seem as one that is viable. having an option of EMI gives the flexibility of paying the total sum in smaller instalments. not only does it help with your budgeting, but it also lowers the interest rates. EMIs are a great help when it comes to proper expense planning. but at the same time, always ensure that you don’t have multiple EMIs at one point that disrupts your initial planning.
while credit cards might seem as a dream to have, with all the fancy offerings, it is important to weigh out the pros and cons of having one before you start using it. first, it is important to make your credit card payment in full every month to reduce considerable debt later. learn about additional fees before making a rash purchase that could affect your credit score. all in all, plan your expenses and keep a track of them so that you can savour the sweetness of credit cards - and maybe avoid chewing on to the bitter seeds.