The Power of Smart Credit Card Usage

“Buy now, pay later.”

Many companies, including major e-commerce firms like Amazon and Flipkart, frequently use this phrase today. The term refers to the notion of credit. Credit cards are one way in which the banking industry delivers credit to customers.

A credit card is a financial tool that allows you to borrow money up to a certain limit to make purchases or withdraw cash. In a country like India, the majority of people do not use credit cards. As per the data, only about 5.5% of the population of the country is using a credit card, while in the USA, it is 82%, and in China, it is 38%. Credit cards seem to be thought of as only for the elite in India. This is due to low financial literacy and is a big misconception that the population needs to let go of. However, economic growth and changing consumer preferences have influenced the evolution of this perception over the years.

Why do you need a credit card?

• Credit history: If a credit card is being used responsibly, it will help you build a positive credit history. A good credit history is essential for obtaining loans, mortgages, and favourable interest rates.
• Perks and Rewards: Using a credit card offers all kinds of perks and benefits depending on the card you opt for, such as rewards points, cashback, etc. These awards can be redeemed for various benefits.
• Safety: Credit cards provide a higher level of protection for you than debit cards, as they limit your liability for unauthorized charges. Credit cards don't directly access your bank account. Transactions are made on a line of credit, keeping your actual funds in the bank safe.
• Grace Period: After a transaction, you are given a grace period during which you have to pay off the balance without interest. This provides you with a short-term float, allowing you to delay the actual payment.
• Emergency expenses: Credit cards are really useful for emergency expenses. It provides you with a financial buffer when you need immediate access to funds.
• Building credit score: Credit cards are great if you are a new user hoping to build up your credit score. Making timely payments and maintaining a low credit utilization ratio will positively impact your credit score.
• UPI transaction: In India, over 75 percent of all retail digital transactions are done over UPI. You can link your 'Rupay' credit card with your UPI payment portal, which is convenient as most shops and merchants use UPI transactions.

With the perks being discussed, it is important for you to evaluate your financial situation and priorities before deciding whether to obtain a credit card. There are other reasons why you may be better off without a credit card:

• Overspending: The ease of using a credit card may lead to overspending beyond your means.
• Impulse purchases: You may be less prone to making impulse purchases without a credit card, ensuring that you stick to a budget.
• Interest Charges: A credit card often comes with high-interest rates, and the interest may compound if you do not pay on time.
• Debt Accumulation: If you have a history of struggling with financial discipline, you may be better off without a credit card, as you may be overwhelmed by unpaid credit card bills.
• Annual Fees: A credit card comes with annual fees. If you are not interested in the rewards and benefits, paying annual fees may not be appealing.

It is important to use your credit card responsibly. Paying the debt on time and staying within the credit limit are the keys to making the most of your credit card without falling into financial pitfalls. While credit cards offer benefits when used responsibly, they may not be the right financial tool for everyone.

As with every aspect of life, credit card usage should be disciplined. Credit cards come with various perks, but they also come with the potential for debt if not used properly. If you believe you are responsible enough, develop a monthly budget and shift as many of your purchases as possible to your credit card. The combination of the benefits that come with credit card usage, such as rewards, cashbacks, buyer protection, and your credit score, will put you ahead of those who pay with a debit card or cash.