Credit card – A useful tool which can be troubling if not used consciously.

E-commerce, online shopping, buying grocery, dining out, movies, shopping, utilities bills and others; there are many reasons for which we spend money. Carrying cash everywhere sometimes looks very difficult for those who frequently spend money on above. For those who want cashless transactions at point of sales, credit card can be very useful tool. A credit card enables a user to do transaction without physical money at the time of transaction and user can pay that money on the bill payment date of credit card. Credit card offers the users various facilities like a interest free period up to fifty days, various cash back and exclusive offers with a particular merchant, flexibility to pay a hefty bill in EMIs and many others.

Always create a balance between your paying capacity and usage.

There is flood of credit cards in the market as banks found credit cards a tool to establish and long term relation with the customers. All major private and public sector banks offer credit cards to the customer. For every purchase except fuel for vehicles and gold ornaments, users get reward points which can be used to avail any promotional offer from the bank.

A question might arise in people’s mind that what banks get to offer credit cards to the customers as people get interest free period on their purchasing, what do the banks get? Answer is – Banks offer credit to customers and customers can pay the money when bill is generated. Banks give a credit to the customers till the billing date and on receipt of bill, money is deposited with the credit card offering banks and that money is then disbursed for the consumer loans on much higher interest rates.

Banks also get yearly fee on some credit cards. Some people convert a purchase into EMIs and banks do provide finance at the interest rate of 12-15%. People who use a credit card and do not pay bill by due day are charged hefty monthly interest rate of 3-4% which becomes approx 40% if calculated on annual basis. Banks also do charge late fee and other penalties if bill is not paid on time. Those who default credit card payments make banks to earn big amount though hefty interest rates and penalties.

This is how a credit card is a useful tool for users and how it generates revenues for banks. For a user, credit card is a helpful tool if it is used consciously with awareness of all terms of conditions. E.g., banks offer a credit card user to withdraw money from any ATM but it draws per day interest of 3.50% and interest free period on further purchasing becomes inapplicable till the all outstanding billed and unbilled amount is cleared. So, unawareness can create a customer to pay huge interest.

Credit card not used with a foresighted approach can land you in huge debts.

It is recommended to credit card users that they must read all terms and conditions of the credit card including the disclaimers. Credit cards holders are suggested to contact the issuing bank or credit card company before availing any offer to verify the validity of the offer and its term & conditions. Sometimes an offer is displayed in highlighted text with * mark and no one bothers to read that asterisk (*).

Very important for all credit card users, never default a credit card payment and pay at least minimum due amount before the due date. Late payments accrue huge interest rates. Never exceed your credit limit and do not make excess purchasing if you have no sufficient funds to pay the credit card bill. If purchased, call bank to convert the amount in EMIs if sufficient funds not available to pay the bill and this should be done before the generation of bill.

Credit card default lands defaulter’s name in CIBIL (Credit Information Bureau India Limited) which forbids the person to avail any loan, credit card and other financial assistances till the outstanding is not cleared. Also, bank or credit card company drags defaulter in the court and judgment is mostly in favour of bank which directs defaulter to pay outstanding or be ready to face action including imprisonment.

So, credit is definitely a helping tool for those who shop and pay bills on time. For those who do not do it, credit card becomes troubling and 24X7 anxiety till the burden of outstanding is carried. Use the credit card with consciousness and avail various helping features.