Anupama has just started working. She is aware of the dangers of indiscriminate credit card use and the fact that it can lead people into debt traps. She uses a debit card linked to her bank account and finds it a good alternative to a credit card.
However, she is flooded with offers from credit card companies and finds the convenience being pedelled quite attractive. She wonders if a credit card will add any value to her ability to manage her financial situation efficiently.
Anupama should know the role a credit card can play in her financial life depends upon her ability to use it to her advantage. She can manage her cash flowsconveniently by using a credit card (thanks to the credit cycle) to meet her regular expenses.
Making payments for regular expenses through a credit card is also a good way to keep track of expenses. Credit cards will also help her meet expenses in an emergency if she is short of funds. Overdrawing her bank account or a personal loan in such a situation will come at a higher cost. There are some situations when using a credit card is more advantageous than a debit card.
Making payments online using a debit card carries a greater risk since an online fraud can cost Anupama her entire bank account balance. Similarly, an error in charging a purchase to a debit card will mean that the amount will be debited to her account immediately and take time to reverse during which time she may fall short of funds. In the case of a credit card, she can appeal against the error and may not be required to pay.
Credit cards give her the facility to make a large purchase even if she does not have the funds immediately. At times, there may be the facility to convert large purchases into EMI payments, in which case it will not attract rolling credit charges provided she makes the EMI payments regularly.
Last but not the least, a credit card is the easiest way for Anupama to build up a history of good credit behaviour based on which her credit score will be assigned. A good score will help her access loans on good terms when she wants it. By being fully aware of the pros and cons, Anupama is very likely to use a credit card responsibly.
Photo Credit: The Capitalist