Credit cards are like Nuclear power. Potential to generate power for years if used in the nuclear reactor and the potential to destroy the world if used in the nuclear weapon.
It depends on how you want to use the technology.
In 2018 alone, I have saved Rs. 1 Lakh using credit cards and I did not calculate the exact numbers in 2019 which maybe even more.
When people like me are saving money with credit cards, some ignorant people making losses by paying interest to credit card companies.
Friendly Side of the Credit Cards
Credit Cards give you benefits over Cash/UPI/Debit cards.
1. Discount & offers
Credit cards offer discounts of 5% to 10% for grocery, bill payments and online shopping. You can get discounts on your monthly expenses on payment through credit cards.
Example: 5% discount on Amazon with ICICI Amazon Card. 5% discount on groceries with Standard Chartered Manhattan Card.
2. Reward points
You get reward points every time your spend on your credit card. The reward value varies from card to card. You can get a reward value of up to 5% on all your spending based on the card.
Premium credit cards offer higher reward value as compared to basic cards. You can redeem reward points for vouchers, gift items or products.
Example: Bonus 1000 reward points (worth Rs. 400) on using Amex Membership Rewards Card just by using 4 times in a month.
3. Welcome gifts
When you sign up for a credit card, banks offer signup benefits in form of a free voucher, annual fee waiver or bonus reward points as welcome gift.
Example: Rs. 10,000 welcome gift from Standard Chartered Ultimate Card on using MakeMyTrip within 90 days.
4. Free access to lounges/ golf courses
You can enjoy free airport lounge access at domestic & international airports with premium & travel credit cards.
Premium credit cards also provide free golf courses.
Example: Unlimited access to domestic and international airport lounges with HDFC Diners Black Credit Card.
5. Free flights & hotels
You can redeem rewards points or travel miles for air ticket booking. We stayed in 5-star hotels and resorts without paying a single rupees. The actual cost is equivalent to the rewards worth if we had converted into cashback.
Example: Convert your Amex Rewards to Marriott points. You can book a hotel worth Rs. 20,000 in 30,000 points rather than redeeming your rewards for Rs. 10,000 cash.
6. Free movies
You can check which credit cards are offering free movie tickets on BookMyShow. The offers keep on changing so I suggest you to have a powerful credit card which offers you movie tickets every month. Only one credit card gives you a discount on movie + food.
Example: Get Rs. 500 off on booking 2 movie tickets + food using ICICI Saphirro Credit Card.
7. Interest-free period
You get an interest free period of up to 50 days on credit cards. Suppose on 16th of every month the credit card cycle starts. Credit card statement would be generating by the 15th of next month.
You get 20 days grace period to pay credit card bills without any interest charges.
You can earn interest when your money stays in your bank account for 50 days.
The dark side of the credit cards
You must be aware of how to avoid charges when using credit cards.
1. Higher Interest Charges
Credit cards charge an insane interest rate in the range of 36% to 48% p.a which is very high when compared to any kind of loan.
If you fail to pay the total outstanding bill by the due date then you will be charged interest rate in the next bill. Always pay in full before due date.
2. Minimum Due Payment
You get an option to pay minimum due amount (about 10%) on your credit card bill. You can avoid only the late fees by paying minimum due, you still have to pay the interest on the remaining amount.
If you continue to pay minimum due for a couple of months, then your outstanding amount would become a heavy debt. 36% interest is too much for a loan.
3. Impulsive Buying
The ease of credit card use leads to impulsive shopping (during online sales) that can derail your financial freedom journey. You can follow the 'Rule of 7 Days Buying' - wait for seven days before you make any impulsive purchases.
Best Usage of Credit cards
1. Use three credit cards
Get a right mixture of credit cards to avail best cashback on shopping, reward points and travel benefits.
One combo could be - ICICI Amazon Card + Standard Chartered Ultimate Card + American Express Membership Rewards
2. Negotiate annual fees
Credit card companies generally waive off annual fees based on your last year spending.
In most cases the charges are debited and then reversed when asked for a waiver. Call your credit card company when you see annual fees in your credit card statement.
3. Get the max possible credit limit
You can ask for increased credit limit that is an indication of your elite financial profile. You may get offers to upgrade your card. The chances of approval will increase when you apply for another bank credit card.
High credit limits also help in improving credit score.
4. Disable international usage
You should disable the international usage on your credit card by login to internet banking or calling customer care.
5. Do not withdraw cash from the credit card
You have to pay cash withdrawal fees and interest fees if you use your credit card as ATM. There is no interest free grace period for cash withdrawal.
Tips on managing multiple credit cards
To manage multiple credit cards you can use the CRED app. The app will remind you the due dates of payment and you will earn cashback on paying bills through CRED.
You can enable WhatsApp messaging for CRED App to keep track of all your expenses, due dates, spend patterns and payment history.
Thanks,
Pardeep Goyal.
