Why do you need to own a credit card? A discussion like never before!

Yesterday, My cousin called me up and asked, “Hey Pranay! Do you have an HDFC credit card? I need it for amazon sale! It has a great offer.” Not new to you! Credit card is nothing new. It has been existing for decades now. Recently, I got a call from IndusInd bank, who have introduced a smart credit card with LEDs and buttons(Yes, I am talking about Nexxt Card). No paid promotions😛.

Let me tell you why I own credit cards and why you should have one too.

Fears

1. Credit Cards are Debt Traps - It’s true and the harsh reality is people get deeper and deeper into this trap and it’s really difficult to get out of it.

2. Annual Card Fees - Great things come at a price. The Lavish cards that you want with all accessibilities charge you a hefty annual charge.

3. Credit card EMIs have high-interest rates - Yes, the banks charge around 12-15% of annual interest on these EMIs.

4. Over-budgeting - Damn! It’s so common, people develop a habit of spending more than they can chew.

5. Hidden T&C* - Credit card companies can change interest rates, annual fees and penalty charges at their wish with just a 2 weeks notice minimum.

So now I have given you good reasons to forget about getting a credit card. But Wait! What if I give you counter-measures against these fears, will you get one?

So I have been using credit cards for two years, for now, let me tell you there are many shades of its usage. I have seen people breaching credit card limits, not paying their bills in full and haphazard spending. But credit cards are great when you use them wisely. Let me tell you the hacks that can change your perspective for credit cards and you will want one too!

Before I go on telling you the hacks, I want to lay some ground rules on how to use a credit card and what are do’s and don’ts associated with it. Credit cards are a great way to create a credit history where one doesn’t have any loan borne on his/her name. A good credit score equals getting loans easier.

One should strictly follow these basic rules while using a credit card:

• Always pay your bills in full and before the due date.

• Never spend more than 40% of your credit limit.

• Never spend more than 50% of your salary unless it’s unavoidable.

• Never withdraw cash using your credit card.

These rules will ensure, you have a remarkable CIBIL score!

One should choose a credit card that suits their needs. If you are a shopaholic, travel enthusiast, movie buff, businessman or just None like me, there exists a card for you. Whenever a credit card company tries to sell you a credit card, they always sell you with an ideology that “You will miss on your payments or will take a loan, ultimately interests vests on their hands!”. But one needs to get the Indian out of you when it comes to credit cards. Bas Nichhod Lena!

How to use your credit cards?

“Nichodna Kaise hai?”

Arsh has a monthly in-hand salary of ₹1 Lakh and uses two credit cards one(A) with a high credit limit of ₹4 Lacs with ₹2.5k as the annual fee and the other(B) with a small credit limit of ₹1 lakh with lifetime free usage. If we follow the rules that I have mentioned earlier, Arsh can spend in a month-

• 40% of card with a higher credit limit - ₹1.6 Lacs

• 50% of Inhand salary - ₹50,000

It should always be a minimum of two, so ₹50K. Both the cards come with their own set of features and reward point system.

Card A

• 4 RP(Reward points) for each ₹150 spent

• 24x7 Travel or Leisure concierge - call the concierge to get the best deals for you

• Annual fees waived off for spend of ₹3 Lacs

• 10,000 RP on the spend of ₹5 Lacs

• 12 Complimentary Domestic Airport Lounge access in a year

• 6 Complimentary international Lounge Access in a year

• RP can be used to pay 70% of hotel and flight prices on the featured website at the value of ₹0.50 every RP (₹2 per ₹150 spent)

• Interest-free period of 50 days

Card B

• 1.5 RP for each ₹150 spent

• BookMyShow 1+1 offer on movie tickets that can be redeemed twice in a month

• Priority Pass, fuel surcharge waivers and complimentary Travel insurance cover

• 1 RP = ₹0.85(₹1.275 per ₹150 spent), which can be used to pay your credit bills, use at Vistara, Intermiles or a featured shopping website.

• Interest-free period of 50 days

Arsh follows a plan here, uses B with a small limit for online purchases to limit the online fraud if any happens and pays the bill using reward points accumulated or via card ‘A’. So to waive off the annual fees of card ‘A’, Arsh requires to spend ₹3 lacs annually or ₹25k monthly. But Arsh is a travel enthusiast or at times have to visit parents and travels via flights to and fro for at least thrice a year. The expenses for the flights and hotels come to be around ₹40k per head.

Arsh realises he can only cover(by our rule) -

• ₹50k expenditure per month on credit cards = (₹50100/₹150 x 4RP) = ₹668 per month as cashback

• (₹668 x 12 months) = ₹8016 in a year as cashback

• On expenditure of ₹6 Lacs in a year, grants him 10,000 RP = ₹5000

• Total cashback from RP = ₹13k which is approx 32% of his travel expenses.

Now the question is who spends ₹50k on a credit card every month?

Finally here are the hacks which can you use to reach such high expense on credit cards.

1. Paytm: Widely accepted and used, right from small Kirana stores to big grocery giants. Arsh recharges his Paytm Wallet every month with a multiple of ₹150(with reward points in my mind) using his card ‘A’ at the start of his billing cycle and makes sure to pay with Paytm wherever possible.

2. Online shopping: Grocery shopping, apparel shopping, just name it that you buy from an online website, is paid via Card ‘B’. Try to shop at the start of a billing cycle, preferably for big amounts, avoid shopping near the end of the billing cycle. This buys you more time for payment.

3. Offline shopping: Swipe your credit card wherever possible when you shop offline( Fun Fact, Paying at petrol pumps don’t earn you RP).

4. Bill payments: Always use your credit card to pay your bills

Use your credit card wherever possible!

You might be shocked, or this article might be first of its kind which advocates the use of credit card so much. But remember, Always follow the mentioned rules.

True Benefits

Arsh’s lifestyle has gone to another level after he started using credit cards.

Dining

Arsh received complimentary Zomato Gold annual membership on card ‘A’ with restaurant partners on Dineout. Card ‘B’ brought in EazyDiner membership onto the table. A plethora of offers and options to choose from with great experience and savings.

Shopping

Arsh gets all the year-round an extra 5-10% off on purchase of various categories and gets lower EMI interest rates using card ‘B’. Card ‘A’ brings in 10-15% off on special festive sales.

Entertainment

Though it’s on the first-come-first-serve basis, BMS offers 1+1 tickets twice in a month at a cap of ₹200 on the free ticket with the card ‘B’. Netflix waives off your first 3 months subscription with card ‘A’.

Free Aiport Lounge Access

Free coffee, wifi, food, juice and a place to rest at Aiport lounges using VISA or MasterCard credit card or using Priority pass.

Interest In a year

Since the payment of the credit card bills can be done in 50 days, the principal amount ₹50,000 in your savings bank account get approx ₹209 as interest till the payment, So for 12 billing cycles will get you around ₹2500 as interest in a year.

CRED

Arsh has been a CRED member after his CIBIL score was well above 750. The ease of credit card bill payments on CRED, offers, vouchers, cashback, all just makes you realise paying credit card bills using CRED is so fruitful. You earn a CRED coin on payment of ₹1 credit card bill. Offer partners and vouchers are just awesome. Let’s save the discussion for some another day.

Ultimate reasons to own a credit card

• Damage-Control: Recently, I have been a victim of “Card Cloning Fraud”(Let me know in the comments if you want to know the story in detail), Someone had withdrawn ₹30k (which I would never do) using a clone of my credit card while I was in possession of the card with me all the times. Thanks to recent RBI rules, I got my money back as it was not my fault and I had not lost my card. In such cases, Immediately block the card. If it would have been my debit card, I would have lost more than ₹30k from my savings bank account and the harassment would have been at another level. Since it was my credit card, the issue resolved just before my billing cycle ended and It all seemed like nothing happened. A credit card gives you a time-frame to react to the damage before actual money is lost.

• Protection: Credit card companies insure their cards and protect themselves from fraudulent activities by issuing claims on the insurance, which is in contrast to debit cards, where your money is at stake!

• Increasing Credit-limit: My Ultimate weapon when the time comes, my credit card, will act as a source of immediate funds with no interest until next due date! I never miss a chance of increasing my credit limit which is often offered by my salary account bank credit card, which sees the change in my monthly savings and income. But I never break the rules I have mentioned before.

For Example, Arsh had a credit limit of ₹4Lacs initially, After a few quarters, his limit has been increased to ₹6 Lacs. One day, the middle of the night, there arises a medical emergency with his father and needs to get admitted immediately. The doctor says they need to operate on him and will require a deposit of ₹10Lacs(Hypothetical! Loot rha hai.. 😛) to start with the operation. Dad’s health insurance only covers ₹3 Lacs and the rest of the expense is to be borne by Arsh. Arsh with a liquid fund of just ₹3 Lacs in his account, pays ₹1 Lacs to his credit card and pays the rest ₹7 Lacs of the medical bill from his credit card(₹6 Lacs credit limit + ₹1Lacs pre-payment), still holding ₹2Lacs in liquidity and no disturbance to his FDs, MFs or RDs with an option of making the payment of credit card bill in EMIs.

I guess, this should be enough to convince you, why credit cards are good! How to use it wisely is up to you. It’s a great personal finance instrument in my opinion which can definitely prove to be a boon. Happy savings!