CREDIT CARDS - Good Or Bad
 CC BY-SA 3.0 Nick Youngson / Alpha Stock Images 

Will you get Interested in a free loan? Does having plastic money result in a profit or loss? Why do banks offer credit cards to customers for free? Today I am going to write on this topic, do Credit Cards have any benefits? Or are they a Debt Trap? Through this topic I want to give a perspective about real like questions but in an interesting way. If you get value from the topic, so please share it and tell us in the comments.

It is understood From the Massachusetts Institute Of Technology when people get access to the credit they end up spending more. When you pay in cash, you can actually see that I had Rs 2000 in my mallet before and After spending, I am left with only Rs 1000. This puts psychological pressure on you that your money is reducing. In fact, this Hollywood film Confessions Of A Shopaholic tells you the downside of owning multiple Credit Cards and debt. Credit Cards give you a credit period before the bills are due. That may tempt you to spend more than you can afford and get stuck in a debt trap.

 Alright, granted. But what about your credit score? A credit tells the lender if you are creditworthy. The score tells the lender that if they lend you money what are the chances of you paying it back on time. The higher the number better it is.

Credit scores consider some facts, I will show you.

1. Outstanding loans

2. Repayment of loans

3. Number of Credit Cards

4. Unpaid Credit Card debt

5. Credit Utilization

6. Timely payments

Cash in the mode of most transactions in India. You can withdraw cash using your credit card as well but you will be charged interest on cash withdrawals. The rate of interest will be similar to the interest of late payment if by mistake you use a credit card instead of a debit card to withdraw funds, then the credit card issuer will charge interest. People who know how to use credit cards pay charges. I will tell you a smart way of using a Credit card. Those who smartly use a Credit card they can get 50 days interest-free loan. Those who are Credit Card has a 30 days billing cycle and the bill has to be paid 20 days after the end of the month. So for example, if I buy something on the 1st day of the billing cycle. I don't need to pay anything for the next 50 days. If I pay the Credit Card bill on time, I don't get charged interest. The money which I would have paid on the 1st day itself can be parked in any short term debt mutual fund. I can earn some interest on that amount.

Interest? Now that's a good point. When you get a Credit Card, and you check the charges, interest on late payment is 1% or 2% depending on the card issuer. This seems very reasonable, right? But there's a catch. These are not yearly interest rates they are monthly, 2% per month means 24% per year only in interest. If your payment is late by even one day, Interest is not calculated for only one day you paid late. Interest is charged for the full 50 days from the date of the transaction to the date of payment. That's where banks make money. They acquire customers at a low entry point and make money from your mistakes. Maybe one month, the customer will wait till the end to pay the bill and then forget to pay the bill on time.  There is a way to save yourself from late bill payments, the way is "CRED". You must have seen those catchy CRED ads during IPL. If you don't know what CRED does, let me explain. Firstly, this app is not for every credit card user. It is only for those people who have a credit score above 750. Rather than keeping different apps for each credit card issuer. It is better to have one app to pay all credit card bills. CRED also tells you about hidden charges, plus the app gives cashback and rewards on bill payments. CRED helps to make sure your card does not become a liability. So to sum it up in a simple voice over "download CRED". E-commerce websites generally tie-up with credit card issuers and case backs and offer to their customers. Plus there are co-brand credit cards like SBI, IRCTC card that gives rewards, discounts and offers on train bookings. But consider these rewards as a bonus, don't rely on them. But there is one definite advantage of credit cards. As an example, if my credit card limit is Rs 50000, so I get extra funds to use in case of any emergency. One definite disadvantage is the annual maintenance fees. Many credit card issuers give, you a credit card for "free" but you need to pay annual charges from the second year or you need to spend a minimum amount on the credit card. If you don't spend more than the limit, you need to pay the charges. To save annual charges, you may end up spending more. There is no free lunch, nothing is truly free. If you use something at no cost or free to you then what are you are using is not the product, you are the product.

So, what do you think? Are credit cards good or bad? Understand all the points and decide accordingly. Apply for a credit card only if you can be disciplined. You will to decides if you want a credit card in the future. To take a logical decision, you will need to understand all points because making sure your money is your asset makes a difference to us.