There is a myth among some people that credit card is bad and it will take all your money.
Yes, It will take all your money if you don’t use it properly or you don’t have any financial discipline.
If you think you don’t have any financial discipline and you are a spendthrift kindly stay away from this.
Credit cards are something that gives your free credit for 45 days for the amount you spend. Technically speaking, you should spend the same amount of money which you have kept in the bank, not the extra money which you have on your credit card.
For example, you have a credit card with a limit of 100,000 and you have 30,000 in your bank and you are planning to spend only 15000 for this month. Now, you are entitled to spend only 15,000 on your credit card not 100,000 of your credit limit. And pay the bill once in 45 days.
whatever purchase you do from 1st of every month to 30th, you have to pay on 15th of next month ( 45 days cycle)
Some people don’t understand this logic and they spend the money which they don’t have and they end up going bankrupt and they blame on the credit cards.
A credit card gives you 45 days interest-free loan on the purchase you have done on your credit card. That means you are not using the money in your savings bank for those purchases and you get 4-6% interest Per annum on that money in your savings bank.
Basically you are making a small savings by using a credit card.
Another advantage of using it is emergency money. If you need to pay that emergency medical bills or emergency travel your credit card becomes a saver pack.
You can use a credit cards for all your basic expenditure like phone recharge, Netflix, or your supermarket purchase. That way you save using your liquid cash for 45 days.
Some cards come with coupons and offer for you dining and travel, which is a bonus for your purchases.
If you think they are giving you free money, No! They make money by charging a 1-2.5% service charge at your sales point.
You are not charged for using your credit cards, the shop owners are charged for providing those services to you. That is why in some shops they don’t have swiping machines.
However, you might have asked to pay those service charges at certain outlets if you use credit cards to pay. It is illegal by RBI’s notification.
You can always confront those outlets and can also complain at RBI’s complaint management system.
The other way they make money is by yearly subscription charges on your credit cards. You can waive off that by their minimum usage policy.
They also make money by selling data on consumer behavior, like for which product category you spend the most of your money, something like how Facebook sells our data.
So apply for credit cards which will suit your usage.
That was a very informative post. Thanks for sharing