Credit cards are generally believed to be the root trigger of all monetary woes and can also lead to a debt trap, if utilized recklessly. However, when utilized in a disciplined manner, credit cards can be an great tool for managing finances, saving dollars and creating a robust credit score.
Given under are 5 strategies how credit cards can be useful for you:
1. Helps create your credit score
As transacting via credit cards is comparable to availing loans, all transactions via credit cards are taken into account by credit bureaus for calculating your credit score. While one accrues interest on loans availed, credit cards do not contain any interest price as extended as the complete bill is repaid by the due date. This tends to make it one of the most easy and price productive strategies to create credit score.
“A credit score of 750 and above is considered as ‘good’ and those with such score have higher chances of availing loans and credit cards at possibly preferential interest rates and charges,” says Sahil Arora, Director, Paisabazaar.com.
2. Saves dollars via many card added benefits
Credit card issuers present many added benefits to card holders in the kind of discounts, reward points, money backs, vouchers, and so forth. Many card issuers also present many life style added benefits like complimentary club memberships, cost-free access to lounge, and so forth. As these added benefits can differ across distinct cards issued by the identical card issuer, make the most of the added benefits by deciding upon the credit card(s) that matches your spending pattern and life style.
For instance, these spending a sizeable amount on travel linked costs such as air tickets, hotel stays, and so forth could opt for travel credit cards although these spending a massive quantity on fuel for commuting can opt for fuel credit cards. Always opt for a credit card whose monetary equivalent of probable credit card added benefits exceeds its annual/joining charge by a wide margin.
3. Helps handle money flow via interest-cost-free period
Interest-cost-free period of a credit card refers to the period involving the date of a credit card transaction and the due date of its repayment. This period can variety anyplace involving 18 and 55 days based on the dates of credit card transactions. “The availability of interest-free period acts as zero cost finance for the credit card spends till their due date of repayment. To derive most of your interest-free period, try to time your big ticket credit card transactions in the initial days of the billing cycle of your credit card. Those with multiple credit cards with different due dates can maximise benefits by spreading out their card transactions amongst various cards in a manner ensuring the longest possible interest free period for big ticket spends,” says Arora.
Note that failing to repay credit card transactions by the due date can attract hefty interest price in the kind of finance charges @ 30-49% appropriate from transaction date till the actual repayment. Additionally, non-repayment of the complete credit card bill would lead to the withdrawal of interest cost-free period on fresh card transactions till the complete repayment of that bill. Note that interest-cost-free period is not applicable on ATM withdrawals produced via credit cards.
4. Allows to finance purchases via credit card EMIs
Credit card customers commonly have an choice to convert their complete credit card bill or a portion of it into EMIs. The interest price of such conversions are considerably decrease than the finance charges whereas the tenure can variety involving 6 and 60 months. Thus, this choice is specially useful for these with restricted repayment capacity.
“Additionally, many credit card issuers also enter into tie-ups with manufacturers/ service providers and merchants to offer EMIs at either lower or no cost on their merchandise or services. Some merchant tie-ups even offer additional discounts and cash backs to the credit card holders on availing the no cost EMI option on select services and products,” informs Arora.
5. Instant credit disbursal in kind of pre-authorized loan against credit card
Credit card issuers provide pre-authorized loan against credit cards to pick card customers getting great repayment record and credit profile. While loans against credit cards are commonly sanctioned against the offered credit limit, some credit card issuers also present an added variant, wherein the loan is sanctioned more than and above the credit limit.
The pre-authorized nature of this loan choice and non-requirement of documentation permit fast disbursal of the loan quantity, commonly inside the identical day of submitting the loan application. This tends to make it one of the most effective strategies for dealing with monetary emergencies and other monetary shortfalls.