Credit Cards, Worth it or not?

We all have heard of Credit Cards and usually get a lot of spam calls and messages for opting for a certain Bank's credit card. Here, in this post we are going to analyse whether it is a good idea to go for a credit card or not.

The Advantages

• It helps you build your credit history. Your credit history is your track record of borrowing and paying it back. It also determines your credit score, which is the basis of sanction of loans. Good credit score will always take you closer to your financial goals (by getting loans at competitive interest rates) if used responsibly.
• More secure than actual cash. You don't have to carry cash all the time for your purchases. If you lose your Credit Card or someone uses it for fraud, you can report such unauthorized usage to Card issuer and can block the card at the earliest.
• Reward Points and Cashbacks. If you use a credit card for your routine expenses, then reward points will add up fairly quickly. You can choose to redeem those points based on your requirements. 
• Better purchasing power with increased credit limits offered to card holders.
• Interest free credit and in some cases interest free EMIs too thereby helping you to manage your cash flows a bit better. 

The Disadvantages

• Uncontrolled spending. You get a higher credit limit and might push few people to go beyond their means. They will then enter the vicious debt cycle. It's important to only spend that much which you can payback every month. 
• Credit Cards Interest, Fees and Penalties. The interest rates on the outstanding amount if remaining unpaid after the due date usually ranges from 2.80 % per month to 3.9 % per month or more than 30 % per annum. This is 45 % p.a. in some of the cards. There are late payment fees, Cash Advance charges apart from the interest accrued on the outstanding amount.

We have looked at both the pros and cons of Credit Cards. Now here are certain important aspects related to credit cards which are mentioned in the Card agreement which we usually don't read.

1. If you have a dispute over billing say for Rs 500 then also pay the total outstanding amount which has been billed. Here's the fine print on that, say for example, you have a bill which is generated on 1st July with its due date falling on 18th July and you didn't pay the full amount because of dispute, right. Now, for all the transactions which you have done after 1st July will attract interest and penalties. You will be charged for interest on Rs 500 as well as the unbilled transactions from 1st July.
   So, this is a big don't in credit card. There are good dispute mechanisms in place and you can expect a refund for any disputes but recommend to pay the billed amount. 
2. Don't ever withdraw Cash from Credit Cards. You will start paying interest on every spends from thereon.

Conclusion

• Use a Credit Card and maybe use multiple cards with higher limits and lower limits but pay off the bills well before the due date.
• Use a credit card instead of a debit card when you are not sure about merchants because debit cards are much more difficult to recover money from. 
• A prudent Credit Card user can easily reap maximum benefits by managing reward points and other loyalty programs. 

Credit cards can easily turn from being a blessing to a curse if it is not used with control. Always ask yourself whether you really need this thing or not? Can paying it with cash possible? Stay interest free as long as possible.