Mar 132017

[Disclaimer: This post is not sarcastic]

Credit card always ring a negative bell in middle people’s mind. Rightly so. Credit card companies have been notorious in duping innocent customers with finer prints and hefty fines. Read here, the tyranny of one such customer at the hand of a big bank. However, if one is vigilant, ever so slightly, then it’s not actually bad.

First, let’s get to basics. Credit card is an instrument through which one can get “free” loan for a period of close to 1 month on an average. Basically it’s exactly like your ATM card, except you can’t draw cash using it (actually you can, but that is too costly and must be avoided). You can use it to make payment for shopping at super markets (or any big store which accepts card) and on e-commerce sites, or paying bills etc. online. You can even carry your Credit card overseas and make payment in foreign currency (provided you have an International validity card).

And to make these payments you dont need to have cash upfront. Once you make any payment using the credit card, the card company would send you a statement at the end of the month (or another fixed date) telling you how much you spent- when, where etc. This statement will also tell you when do you need to pay this “Free” loan back to the company. There is generally a time period of 15 days given from the date of statement to the date of payment. Hence, one gets anywhere between 15-45 days “free” loan depending on when the purchase was made. Important to note is that

Amount to be paid = Amount spent

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There is not charge for the “free” credit period! This is the reason why everyone should have a credit card.

The statement also has columns for financing charges and due from previous statement. These would be generally blank if one makes credit card bill payment on/before time. But those who don’t see the dark side of Credit cards. If one doesn’t make the payment of outstanding within the due date, the bank charges a hefty interest rate (typically 3% pm or 36% pa) on the outstanding amount as well as a penalty. This is where it gets ugly and people who make this mistake end up swearing by the name of Credit cards.

But the solution is simple, just keep a tab of due date of credit card bill payment and ensure the full amount is paid in time. Better still, make the payment as soon as the bill arrives rather than waiting till the due date.

If one keeps this discipline then Credit cards are a boon. Not only do you get free credit period, there are often different kind of promotions run by either the Credit card company or merchants/etailers giving cashbacks and discount for using certain Credit card. Which brings me to my original point- have as many Credit cards as you can (and which you can rigorously track for due dates). Since, promotions are run across different kinds of Credit card, having multiple Credit cards increases the chances of being eligible for one.

However, one big factor to consider before plugging into the pool of Credit card is internet security. While maintaining discipline of making timely payments is within one’s control, internet security isn’t. Credit cards (or for that matter Debit cards, ATM’s, Netbanking) carry an inherent risk of online frauds. Having multiple cards only increases this risk. One of the precautions to take while enrolling for multiple credit cards is to keep the credit limit at the minimum. This will ensure the risk of fraud is limited. Another security measure is to disable International Usage on the card.

So, if you have the discipline go for it. But if you always turn late to meetings, avoid Credit cards.