GIVE YOURSELF SOME CREDIT

Credit cards do not mean extra cash, you just get a 45-day loan

Used unwisely, credit cards have been known to pull users into an unending debt spiral. People often forget that the credit card does not put extra money at your disposal in one swipe, it allows you to borrow for free, provided you repay it within the due date. Cautious use of credit cards delivers big returns in terms of awards, benefits, cashbacks and exclusive perks. It is truly convenient, eliminates the need to have extra cash in hand or, if out of cash, saves you the trouble of rushing to the nearest ATM. In short, a credit card allows you to:

BORROW

Need to splurge or pay instantly for a ticket, and cash is a week away? A credit card is the ideal mode of payment in such cases. You can make the purchase instantly, use the money with no extra charge if you pay by due date. The free-credit period is normally 45 days

In other words, it’s an instant, interest-free loan for 45 days. You can also repay in instalments, but then you pay interest

RECORD

Credit card statements help you keep a record of your expenses

A few companies also provide an end-of-the-year summary that can help you manage your finances

CREDIT SCORE

A credit card helps you maintain a credit score and enables credit bureaus to keep your credit history

One has to be careful, though, as exceeding the credit limit affects your score, and has a bearing on future loan applications

It could lead to rejection of your application or a higher interest rate

Conversely, timely repayment helps you build an excellent credit history, which improves your eligibility for future loans

EARN REWARDS

Some credit card companies offer additional bonuses, or a certain percentage as cashback on joining. Besides, there is a minimum 1-5 per cent cashback on movie tickets, phone and other utility bill payments, etc.

VIP advantages like airport lounge access, gourmet privileges, concierge service, golf privileges, bonus reward points, spa, movie ticket bookings etc.

Points are also awarded on each purchase. Accumulated points can be redeemed for a gift card, select items or be converted into free air miles

But used unwisely, credit cards can lead to:

DEBT TRAP

Impulsive buyers should avoid getting credit cards

Late payments not only attract higher interest, an additional fee is levied depending on the money borrowed, besides service tax

Exceeding your credit limit also attracts a charge. Credit card companies charge anything between 2.5 and 3.5 per cent monthly, or 30-42 per cent annually on overdue interest on extended credit

Many companies charge a transaction fee of around 2.5 per cent on cash withdrawals from ATMs and 2.5-3.5 per cent monthly interest on cash advances.