Personal Finance experts spend a lot of energy to prevent people from using credit cards. I am also writing about personal finance on InvestBuddy but I am in favor of using credit cards.
Personally, I consider the credit cards as the best money-saving option. You can even save some thousand of rupees every year or can plan a foreign trip with your family.
In some cases, having a credit card becomes the necessity. Let’s explore the biggest benefits of owning a credit card.
#1. Build & Improve Credit Score
Every bank must check the credit score of the applicant on every loan or credit card application. This credit score shows the creditworthiness of the applicant which helps in to evaluate whether he/she repays the debt or not.
In case of having low credit score or no credit history, banks reject the loan application. So the result is having a good credit score becomes must to get any loan.
In such case having a credit card & using it rightly is the best way to build credit score & also improve this.
If you don’t have any credit card and credit history, you should apply for secured credit cards like ICICI Instant Platinum card.
Banks easily approve the application of secured credit cards because these credit cards are applied against fixed Deposit. This will help you to build your credit score.
You may also like to read a step by step guide to check free CIBIL score
#2. For Bloggers & Online Entrepreneurs
As a blogger Do you face a situation in which you want to buy some online course or tool but couldn’t buy because of not having a credit card (credit card is the only payment option).
I had faced the same problem while buying web hosting when I just started. That time, I had to go for Godaddy (Godaddy offers other payment option like the debit card).
For Bloggers having a credit card becomes mandatory, because many times we need to buy web hosting, themes, online courses, tools or software. Most of the times, we have only “payment through credit card” option is available.
#3. Earn Interest During Interest-Free Period
“Shop Today & Pay Tomorrow” is perfectly suited on credit cards.
When you pay in cash or through debit card, money instantly goes out from your pocket or bank account to the merchant. But this is not the case with credit cards.
Banks offer a grace period of Up to 50 days on credit card spends. If you repay credit bills within this grace period you don’t have to pay any interest to the bank. In this way, you use bank’s money for free of cost and can earn interest on your money.
For example, you make a purchase of INR 50,000 with your debit card. Your money immediately deducted from your saving account. But with credit card purchase, the money would be in your saving account up to for 50 days & you could also earn interest on that.
The interest amount would be around ~ INR 275 (50,000* 4%* 50/ 365). Earning of INR 275 (yearly this becomes Rs 3300) without doing anything. You can increase this amount by investing in the higher returned product like FD where you earn 7 to 9% depending on where & when you open your fixed deposits.
#4. Special Offer With Credit Cards
Whenever I visit any online shopping websites, I found exclusive offers, especially for credit card users. There is a direct money saving between 10% -20% just by making payment through credit cards. For me, that’s huge saving, Isn’t For you??
Credit card saving is not limited only up to online shopping website, but have the same impact on travel booking websites like MakeMyTrip, Yatra & BookMyShow of movie ticket booking website.
If you go for watching the movie even only for once a month, through such offer you can up to Rs 2400 yearly.
#5. Saving On EMI Transactions
Usually, we have to pay interest on the EMIs, But one day I noticed an offer on Flipkart on EMIs transaction through SBI credit cards. Just take a look.
In this offer, there was no EMI cost charged in case of purchase through SBI credit card. A great offer.
Such EMI offers give the benefit of the double grace period. Firstly, you pay the product amount in 6 monthly installments instead of Immediate payment. Second, each EMI payment is processed through your credit card & from the bank you get the grace period of up to 50 days for repaying the bill.
#6. Temporary Out of Money
The most common thing happens with many, to be short of funds on the temporary basis. This is usually happening with the salaried people. Be in the last days of the month, have short of funds, waiting for the salary to appear in account & suddenly an uncertain expense arise.
A credit card is the best option in such situation instead of an emergency fund or fixed deposit withdrawal. Firstly pay through the credit card and when salary appears, repay the credit card bills.
But if the phase is going to be a for a long time then don’t spend through credit card. Because in case of not paying credit card bills on time you have to bear huge interest (3% – 4% per month). Which turns the bad situation into worse.
#7. Welcome Gift (SignUp Bonus)
“The very first reward is always the most tempted one” is best used by banks for credit cards. Banks offer huge welcome gifts on their premium credit cards for attracting the customers towards the cards.
In some cases, you get welcome rewards immediately after the approval & paying the annual fee. For example, American Express bank issued gift voucher worth INR 4000 immediately paying the annual fee.
But in cases, you have to fulfill the certain condition to get the signup reward. For example, with Yes Bank Preferred credit card, you need to make the first transaction within 90 days of card issuance to get the welcome reward of 15000 reward points.
#8. Reward Points & Cashback Benefit of Credit Card
Credit cards reward you for using them, either in terms of reward points say 10 reward points for every INR 100 spent or with money in terms of cashback. This way, you can save up to 5% of your money by reward points & cashback.
Through Cashback & Reward points you can easily save Rs 3000 in one year.
Expert Advice, This is the direct saving on your every spent. While comparing the credit card give more priority to reward points & cash back as compare to welcome gift. Because you will get welcome gift only for the first year (rarely on renewal) but you will earn reward points till the last spent.
#9. Special Benefit With Co-Branded Credit Cards
Co-branded credit cards are sponsored by third-party like airlines, online shopping websites or travel booking websites. These credit cards offer great deals on the sponsored platform.
The most famous co-branded cards include SBI Air India Credit card, American Express MakeMyTrip Card, SBI Yatra Card, Snapdeal HDFC credit card, and Jet Airways co-branded credit cards.
You can make an idea about the benefit that you can get from the Co-branded credit cards from the screenshot. This is offer for SBI Yatra credit cardholder on travel booking on Yatra.com
As you can see in the screenshot, you can save near about Rs 10,000 on travel credit card. But I will not include this in the calculation of more than 10,000 annual saving.
Suggestion, Co-branded credit cards are useful only if you are regular customer with the sponsored party
#10. Bonus Saving
Credit cards offer bonus reward points on achieving a threshold limit in a time period of one year. This is an additional saving over the welcome gift & regular reward points.
Just have a look on the bonus offer by SBI Air India Signature Card
Mostly reward points are given as bonus gift. You can redeem these reward points against gift cards or plan a foreign trip.
Almost every credit card offers bonus reward points on achieving threshold limit. If we consider the average saving through bonus reward points, it lies in between 1% -2%.
On annual spend of Rs 2 lakh, you can easily save around Rs 2000.
#11. Universal Acceptance
Debit cards are not accepted at everywhere, especially when you are traveling to abroad. At that time, You have the two options, either carry a lot of cash with you or have a credit card.
Carrying a lot of cash is not an easy & even not safe also. A credit card is very easy to carry & even safe in case of theft. In this way, a credit card provides more convenience than cash.
Even many travel credit cards also offer reward points on foreign spends. This is going to be a saving in board also.
#12. Protect Your Money
What happens if you lose your wallet full of money? Probably you would not see your money again (except the case if I found your wallet 🙂 ). You will lose all your wallet money.
What, If you carry the credit card & lost the card? Rapidly inform the bank about the card lost & you would not be liable for any misuse. You don’t have to bear any financial loss.
Even many credit cards provide lost card liability cover up to INR 1 lakh. What you need more?
#13. Complimentary Insurance
Complimentary insurance is one common thing in many travel credit cards. Travel credit cards provide life insurance for air accidental cover, medical insurance while traveling and baggage insurance.
This is a complimentary benefit offer by some specific cards & you don’t need to pay any extra fee.
Look at the insurance coverage provided by the Yes Bank on Yes Bank Preferred card.
Let’s Calculate Total yearly Saving
In this calculation, I am only considering the estimated savings from interest earning during, special offers with credit cards, reward points & cashback saving and bonus saving.
The figures are 3300+2400+3000+2000 = 10,700
In this, I didn’t consider the benefits such as welcome gift, travel benefits, and complimentary offers. These benefits are available on some selected premium credit cards. If you have a premium credit card, your saving amount could be anything.
(PS – The figures are only estimated and could vary on the basis of the type of credit card and the usage)
How Do You Choose the Right Card for Me?
To save hundreds or may be thousands of rupees, you just need to find out the one card that works best for you. I know, there is too much confusion about where you should go. Let’s make it a little simpler.
Firstly think about, where do you spend the most? For example, travel, online shopping, departmental stores, malls, fuel or dining. You can choose from the best credit card in India.
Once you decided this, your half work has done. Now you have to compare the credit cards only in this specific category (Where you spend the most).
Next step, calculate the range of annual spend that you would make through the credit card, say 2 to 3 lakh.
Find out the credit cards that provides best offers in your annual spend range like annual fee waiver, bonus reward points or gift voucher.
Now (hope so), you left with 2 to 3 credit cards to decide in between. Calculate the real benefit ( expected benefit – annual fee) you will get from each credit card. Go with the higher one.
When Shouldn’t You Use a Credit Card?
In starting I mentioned, “many personal finance experts spend a lot of energy to prevent people from using credit cards”. The reason behind this is, despite the benefits that one get with paying through a credit card than paying with a debit card, for some people it’s still better to pay through the debit card in the following conditions.
- When you can’t pay your credit card bills
If you are not in a situation to pay your credit card bills in full on time, then pay with cash or debit card. Otherwise, you have to bear high-interest rate on the outstanding amount. This will affect your pocket & credit score also.
- You tend to spend more than you can afford
If you have such spending habit, then you should stick with cash or debit card because this will limit your spending. A credit card might put you in a financial crisis.
I shared both the facts that why you should or shouldn’t have a credit card. Now It’s your decision time. I hope you will select the best option for you.