Credit Card – Evil Stepmother Or Fairy Godmother

The analogy is quite apt don’t you think?

But before we get too carried away with the fantasy, let’s look at the facts.

• India has the lowest credit card adoption rate compared to other countries with high GDP like Canada, the USA, UK, China, Brazil, Germany, Japan, etc
• According to GlobeNewswire, there are only 3 credit cards per 100 people in India compared to 32 for every 100 US citizens.

Most of us have been taught to spend only what we earn and credit cards have the bad rep of being used for things one can’t afford. But this is far from the truth, credit cards if used properly can help us manage our expenses efficiently.

Advantages of a credit card

• Increases purchasing power 

With a credit card, you have additional money whenever you need it. In case of unexpected expenses like a broken phone or a medical bill, you won’t be left scrambling for funds.

• Helps accrue interest on salary

When you pay all your bills with a credit card, your salary stays in your bank account for longer thus providing you with higher interest. You can also pay your rent with a credit card on Freecharge thus keeping more of your money in your account.

Pay Rent Through Credit Card

• Helps build a credit history

When you pay your credit card bills on time your credit score will increase. This in turn will make it easier for you to get loans.

• EMI advantage 

You can opt for EMIs for big purchases making it easier to handle your finances. 

• Offers and rewards 

With reward points that can be redeemed for cashbacks, gift cards and more, it makes sense to make payments with your credit card.

• Interest-free credit

Unlike a loan, you don’t have to pay interest on the money you spend as long as you pay back the whole credit card bill before the due date. 

Disadvantages of credit card

• Build-up of interest 

Many people misjudge the actual amount that they need to pay and end up paying only the Minimum Due. This builds up interest, but paying the whole due should be enough. 

• Hidden costs

Don’t fall for the ‘FREE Credit Card’ gimmick. Always research different cards for hidden fees like joining fees, late payment fees, renewal fees etc, and choose one that suits your needs.

• Overspending

Many people end up using credit cards without a thought about paying back the money. Keeping an eye on your spending is enough. 

• High rate of interest

Compared to other loan products like personal loan, credit card interest rates tend to be higher. It is better to check whether you should take a personal loan or use your credit card before you make a purchase. Here is how you can compare –

Credit Score

In conclusion, whether a credit card ends up being your Evil Stepmother or Fairy Godmother is in your hands.