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Many people argue that credit cards impulse us to spend more. But they ignore that there are many advantages of keeping credit cards in the wallet. Credit cards can be used as a financial tool if we use it properly and responsibly.
In recent few years, the use of credit cards gained popularity. Credit cards are plastic money and are the most convenient way to manage finance but it can be expensive and risky if you don’t use it properly.
What is a credit card?
A credit card is a plastic money issued by banks and financial institutions to make a card-holder to purchase products without any amount deducted from his bank account. It is a type of loan which is provided to the card-holder and the card-holder has to repay the amount within the due date, failing which result in huge interest cost.
Advantages of Credit Cards
No need to carry cash :
Carrying a lot of cash is very risky. There is a negligible chance of getting back your cash if stolen or lost. But credit cards can be quickly cancelled or blocked when lost or stolen.
If you have credit cards, you can make a purchase anytime and anywhere. You don’t need to carry a lot of cash. Credit cards provide you the ease of use. Credit cards are also beneficial for those people who travel a lot and have to carry cash.
EMI facility :
If you want to make a large purchase but you don’t have so much of money, a credit card helps you to buy at once and repay-back in instalments. In addition to that, you can choose the EMI facility while purchasing goods. Paying through EMI is cheaper than taking out a personal loan to pay for a purchase, such as television, laptop, smartphones etc.
Track your Expenses :
A credit card record all your expenses made through your credit card. All your expenses are recorded and you can check the details of all your expenses in your monthly statements.
These monthly statements help you to track all your expenses and you can find out where you spend the most. You can also find out all those unnecessary expenses which you can avoid.
Some banks and financial institutions also offer yearly statements apart from monthly statements. This yearly statement helps you in filing your income tax returns and paying taxes.
Credit Rating :
If you responsibly use your credit cards and paying your credit card bills on time, it will improve your credit rating or CIBIL Score.
A high CIBIL score is very helpful when you need money for emergency purpose. If your CIBIL Score is high, then banks and financial institutions can offer you loan at cheap rates.
Interest-free loan :
Credit Cards offer interest-free loan period of 45-60 days. During this period, interest is not charged on outstanding amount. If you repay your outstanding amount within this period then no interest will be charged from you.
Thus, you can get the benefit of an interest-free short-term loan if you pay your credit cards bill on time.
Disadvantages of Credit Cards
The biggest advantages of credit cards is that you don’t need to carry cash and there is no decline in your bank account while purchasing from credit cards.
But unfortunately, these advantages of credit cards result in overspending and most people use their credit cards for unnecessary expenses.
High-Interest Rate :
In case you missed the due date of paying your credit card bills, you have to pay high rate of interest on your outstanding amount. There may be chances that despite careful planning, you may miss payments on your credit card bills because of any problem.
Credit Card Fraud :
With the advancement of technology, the cases of digital fraud also increased. Nowadays, the cases of credit card fraud also increased and there are chances that you also become a victim. Credit cards can be stolen, their numbers can be copied and your credit cards can be used by other individual or entity to make transactions.
So, it becomes necessary to check your credit card monthly statements carefully and if you find any unsuspicious transactions then immediately inform to your banks.
Banks usually waive of charges on fraudulent transactions but it is time-consuming.
Credit Damage :
Failure in payment of your credit card bills on time not only result in interest cost but also negatively impact your credit score. A low credit score is a nightmare for a person who wants to take loan from banks and financial institutions.
Related Post: How to Improve your Credit Score?
Other fees and charges :
Depending upon your credit card, you may be charged various types of fees. There are annual fees, joining fees, late payment fees, renewal fees etc. Missing your credit card dues on time not only result in interest cost but also you have to pay late payment fees.
How do you use a credit card responsibly?
Credit cards help you to purchase now and payback later. Apart from that, credit cards offer many rewards and benefits. However, to gain the maximum benefit from your credit cards, you have to use it responsibly.
Pay your credit card bills on time
Everyone knows that credit card bills should be paid on time. After that most people fail to pay their credit card bills before the due date. The rate of interest on credit card outstanding amount is very high.
Apart from that, you have to pay late payment charges also and you may lose other benefits. Late payment of credit card bills negatively impacts your credit score.
Pay more than the minimum
If you pay only the minimum amount due which is shown in your credit card statement, then you are doing mistakes. This minimum amount is demanded by banks and financial institutions to keep your account active.
If you pay only the minimum amount and not the full amount, then your remaining outstanding balance will be carried forward. On this remaining balance, you have to pay heavy interest charge and it also reduces your credit score.
Check your credit card statements carefully
Check your monthly credit card statements carefully. There may be chances of some technical mistakes or any fraudulent transactions. In this case, consult with your bank. Carefully checking your credit card statements not only helps you to save from technical mistakes and frauds but it also helps you to control your unnecessary expenses.
Read credit card documents carefully
When you apply for a credit card, you must read all the terms and conditions carefully. This will help you to know the joining fees, annual fees, renewal fees and due dates.
If you lose your credit card
In case if you lost your credit card or your credit card is stolen, then report it immediately to your bank and block the card. When your bank deactivates your card, then no one can use it and your money will remain safe.