Credit Cards: Good or Bad?
Credit Cards are one form of plastic money that allows the user to borrow money from the issuing authority generally a bank or financial institution. Credit cards allow users to purchase things on credit (means that you can buy things even if you do not have money with you or in an account but will pay at later date). So Credit cards give flexibility to buy things to the user even if they do not have the required amount of the money in your account.
However, this concept of credit cards causes customers and users to spend money that they do not have. When the credit card bill arrives, the bill needs to be paid within the time or due date. If the bill is paid in full then there is no worries but there are some mistakes consumers do and got in the trap of the credit card companies. Below are the common mistakes that I observed that users actually do with credit card.
1. Making minimum payments.
This is the most common trap in which users get trapped. Making minimum payments just help you not to get reported for credit default only but it carries some hefty interest to be paid on the "unpaid balances".
2. Spending money on non-essential items.
If you do not have money, it will be hard or may be embarrassing to ask for money from friends and family for buying non-essential items. Credit cards made it very convenient to spend money on non-essential items even if users do not have money.
3. Deter the saving habits.
Since you are spending even before you have money in your hand, it is quite possible that you are not even saving enough. It is quite possible that user might have to "pay the bill first" instead of "pay yourself first" when money landed in the user pocket or account.
4. Zero Cost EMI trap.
Even if they are not charging interest on money, but still user have to pay for the processing fees for it. Also, it comes with the additional risk that user might default in the later date and if it happen then user have to pay a hefty interest against Zero percent interest EMI. Actually zero percent interest EMI entices the user to use the credit card and take a loan for longer period when actually no loan is needed.
5. Missing payment deadlines.
This is most worst thing to do with your Credit card because missing the deadline causes all types of fines and interest levied against the credit card user that include late fees , processing fee and interest on balance etc.
Should we destroy Credit Card?
By above points it look like Credit card may be the worst product to use but this is not the case, if you take care of the below point or use it responsibly then actually you can reap the benefits of having credit cards. I believe in certain cases they actually save money.
1. Credit card Offers.
Credit cards sometimes have amazing offers that allow users to get 5 to 10 percent additional discounts on the product and services. Some of the services that get offered by credit cards like airport lounges are actually v expensive services. Getting 2 movie ticket on the price of one is also a nice offer and save money.
2. Earning Rewards Points.
Credit cards offer reward points for purchase done using credit card and reward points do add up nicely when credit card is actively used for whole year.
3. Build your credit history.
Responsible use of credit card build the good credit history and good credit score that can help in getting "little" cheaper loans from banks in the future.
My 2 Cents.
I learnt in my childhood that "Fire is a good servant, but a bad master" and same thing goes for the credit card. Suppose it is used responsibly, availing the offers in credit card when needed, getting discount on purchases , earning rewards points on purchase and able to pay your bill fully before due date. In that case, it will really make credit card an awesome product but if get on the trap of the "hefty interest" of the credit card and become spendthrift due to it then it is a really bad use of credit card.
So use credit card wisely , save money and invest money instead of falling into debt trap.