What is Credit Card?

Credit Card

Credit card is Plastic money issued by banks or financial institutions, it’s just like a currency notes through which you can purchase things we like, pay bills in the restaurants, buy the tickets for traveling, etc.,

It can be used for 3 main reasons, that are Payments at any outlets, online payments & Withdraw cash at ATMs, etc..,

How to apply for a Credit Card?

How to apply for Credit Card

  • You can approach any of the banks which gives the best Credit Card offers or you can also apply through online.
  • Getting a Credit Card mainly depends on the salary of an individual & CIBIL Score which details on the history of use of Credit Card & Credit Card payments.

Pros and Cons of Credit Cards

Pros and Cons of Credit Cards

Pros

  • Safe way to carry than cash for example if the Credit Card limit is of 1 lakh rupees then there is no need to carry the 1 lakh hard cash which is not practical and safe, instead carry a Credit Card with cash limit of 1 lakh or more.
  • Record the transaction, you will be able to record all the transaction made using a Credit Card which is not so precise while using cash transactions.
  • This record can help you in any kind of conflicts.

Cons

  • Higher Credit Card interest rates & other chargers – If the Credit Card due payments is delayed then you may end up paying higher penalty charges or late payment fees with high-interest rate & other hidden charges.
  • The Credit Card interest rates can vary from 36% – 40% p.a. for the loans taken from Credit Card
  • CIBIL Score is affected in case of default – If you are not able to pay back the loans taken from Credit Cards then your CIBIL Score is affected, if the CIBIL Score is affected then you may face problems while getting the loans or Credit Card in future
  • It also takes a lot of time to improve the affected CIBIL Score

Is Credit Card Good or Bad?

Answer to Question is very simple as it depends on how you use it, if you use the Credit Card smartly then yes definitely you should go for it.

Many people use the Credit Card in a very smart way and here we will see how smartly one can use the Credit Card.

Many of us might have heard about the interest-free credit period or the grace period from the person who sells you a Credit Card right?

Let’s understand with an example

Firstly let’s assume the bill is generated on 5th of July and the payment due date is 25th July, here the time we get a free credit period to pay back the bill which is 20 days

Secondly, if you have done the shopping on 6th May then the time period from 6th May to 5th June is 30 days so if you add the total days we get 50 days for the time period to repay dues.

So in this way, it depends on from the day when you do the shopping the free credit period is calculated which is a minimum of 20 days and a maximum of 50 days

Now the important part is if you fail to pay the bill on the due date which is 25th of July in the above example then the interest is charged right from the date of purchase that is from 6th May

So the total of 50 days interest is charged if you fail to repay the dues

Should I take a Credit Card?

If you are planning to take Credit Card its obvious that you take suggestion from friends and relatives who are already using it and in such case, they may tell you all the bad experience and losses which they have come across.

This is not really true

  • You should definitely take a Credit Card and just learn to use it smartly and it becomes more convenient.
  • Spend as per your payment capacity and not as per the Credit Card limit.
  • Always pay your full amount due on time which will affect the CIBIL score if the Credit Card payment is not done on or before the due date.
  • You always get to see Minimum Amount Due in your Credit bill, Don’t get into the trap of Minimum Amount Due.

Let’s understand this with an example

Suppose your total due amount is 1 lakh and the date is 25th July as in the previous example

The Minimum Amount Due mention in the Credit bill is Rs. 6000

If you pay only the Minimum Amount Due from the bill then the balance amount will be Rs. 94000

Now the interest rate will be charged on the balance amount that is Rs. 94000

If you have done the shopping on 6th May then the interest charges will be applicable from 6th May @ 36% p.a. which is a quite big amount

Hence always keep in mind to pay your full amount due and not the Minimum Amount Due.

By doing so your CIBIL Scores are maintained and you are saved from paying high-interest rate on the balance amount.

Key Points

Minimum Due Amount –It is usually 5% of the total due amount. It is the minimum amount which needs to be paid to keep the card active.

Total Due Amount – It is the total bill amount which is due

How do I clear debt fast of a Credit Card?

Things to keep in mind

  1. Delay the purchase of non-essential items and make the Credit Card payment as soon as possible
  2. Pay Credit Card dues before any other loans because as mentioned earlier Credit Card interest 36% – 40 % which is higher than any other interest rates
  3. If you are not able to pay the credit card bill then there are other options to pay your Credit Card bills, take another loan, that is if you have any existing loan such as home loan, personal loan then you can take a top-up loan from the bank and pay the Credit Card dues
  • Advantage of doing so is you get a better interest rate
  • You can pay Principal and interest at once

Should I take cash out of ATM using the Credit Card?

No – If you facing any extreme emergency for money only then you should not take out the money from ATM using Credit Card.

If you withdraw the money from the ATM using a Credit Card then you will end up paying high-interest rate (36% to 40% p.a.) from the day of withdrawal.

No interest-free period is available

What is EMI Conversion?

Often the bank people say that the amount used for purchasing can be converted into EMI

So what does this actually mean?

It means that the amount used for purchasing will be converted into longer tenure EMI option or in simple converting Credit Card debt to longer tenure EMI option

Let’s understand with an example

Suppose the Credit Card due is Rs. 50000 and you need to pay it immediately falling which you have to pay the interest of 36% p.a.

So in this case, if you convert the due amount to EMI then must pay 5000 p.m. with the interest rate of 24% p.a.

  • Lesser Interest and Longer tenure
  • A better option can be a personal Loan which is having 18% interest rate

What is 0% interest EMI or no cost EMI?

Yes you will buy goods at MRP or much less discount

In this case, the Credit Card company will be paid the interest amount directly from the manufacture of the goods

For example, if you buy a fridge and the price of the fridge is Rs. 30000 MRP directly from the market then you get a discount of Rs. 3000 easily and price becomes 27000

But if you buy the fridge using a Credit Card then the price of the fridge will remain Rs. 30000 and the discount amount which you get will directly go to the Credit Card company

So 0% interest EMI or no cost EMI is just an attraction for the buyers to buy the goods.

How many credit cards are good for your credit score?

Many of us have more than 2 Cards which is not recommended

I recommend having 1 or 2 Cards max which is more sufficient

It will be very difficult to manage more cards, also annual charges, transactions, defaults.

So it is always better to have less number of Cards

I think I have covered all the major points related to Credit Card. I hope this article helps you in understanding a Credit Card, its usage and its Pros and Cons

Now you will be able to use Credit Card smartly

I also suggest you to know how to save money so that there is no need for you to use a credit card.


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