Are credit cards good or bad? 

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Some people find credit cards complicated and stay away from them. Some people tend to overspend and easily fall in a debt trap. But do you know when used wisely credit cards can actually put the money back in your wallet. 

Here is a lowdown on how credit cards work and pros and cons of using plastic money. 

What is a credit card?

Credit card is a rectangular shaped plastic card, which gives you interest-free credit if you pay your entire bill within the due date. You can use your card now and pay for your purchases later . It also gives you the financial cushion in an emergency. For example: credit cards prove quite handy in order to meet unforeseen expenses such as sudden hospitalisation or loss of job.  

How do credit cards work?

Credit cards give you an interest free loan for around 15-20 days based on the date you made the purchase. But you can actually maximise this interest-free period to around 45-50 days if you schedule your big purchases to the beginning of your credit cycle. Suppose, your bill is generated on 15th of every month and the due date for payment is 30th of every month.  Then by scheduling your big spendings around 16th you can push the billing to the  the next month. However, if you make the same purchase before 15th you would get only 15-20 days as the purchase will be billed in the same month.  

Are Credit Cards Good or Bad?

There are many advantages of using a credit card. First, at the time of emergency it gives that extra cushion when you need money the most. Second, you earn reward points for the spending done on your card, which can be redeemed later. Now there are apps such as CRED which gives you a chance to earn reward points even on the payment of your credit card bill. Third, at the time of pandemic when digital is the buzz word, use of contactless cards keeps you safe. The good news is RBI has recently increased the limit on these contactless cards from Rs2,000 to Rs 5,000.

Now, if you made the payment before or on the due date then credit cards are really a boon, as it gives you that extra liquidity, especially at the time of emergency. But credit cards can be bane if you use it without accountability. The unnecessary swiping of a card can entangle you in a debt trap as apart from heavy penalty it also charges interest as high as 3-4% per month for missing the payment date.  Not only does it levy high interest, it also affects your credit score, which means in future no bank or financial institution would give you a loan because of your bad credit history.

Money 9 says credit cards not only give you cash flow but also builds your credit history for a good credit score.  But if you don’t use it wisely and spend more than you can repay, then you can also get trapped in a vicious circle of debt. The key lies in using the plastic money wisely.