Credit cards often get a bad reputation for causing financial problems and debt. While it's true that misuse can lead to these issues, credit cards can also be valuable tools for managing finances and building good credit. People who are able to get their hands on some rewarding credit cards available in the market, already know this fact.
When used responsibly, credit cards offer several benefits. Below are six ways credit cards can work in your favour.
The Benefits of Responsible Credit Card Use
1. Building a Credit Score
Using a credit card is similar to taking out a loan. Every time you use your card, it's recorded by credit bureaus, which helps build your credit score. Unlike loans, you don't pay interest on credit card purchases as long as you pay the full balance on time. This makes credit cards a simple and affordable way to improve your credit score.
2. Cash Flow Management
The time between making a credit card purchase and the due date for payment is called the interest-free period. This can be anywhere from 18 to 55 days. By timing your bigger purchases for the beginning of your billing cycle, you can make the most of this interest-free period. If you have multiple credit cards with different due dates, you can spread out your spending to get the longest possible interest-free time on your larger purchases.
3. Financing Large Purchases with Credit Card EMIs
Credit cards often provide the option to convert your total or partial bill into monthly instalments (EMIs). These EMIs typically come with lower interest rates compared to traditional financing options and can span from 6 to 60 months. This feature is particularly beneficial for those with limited funds.
Additionally, many credit card issuers partner with retailers and service providers to offer interest-free or discounted EMIs on their products or services. Some merchants even provide extra discounts or cashback to cardholders who choose no-cost EMI options on specific items.
4. Emergency Fund
Unexpected emergency expenses can arise at any time. A credit card can serve as a financial safety net during these tough times, allowing you to cover sudden costs without immediate cash on hand. For example, if your car breaks down or you face unexpected medical bills, a credit card can provide temporary relief until you can arrange the necessary funds.
5. Benefits and Rewards
Credit card issuers often provide cardholders with benefits like discounts, rewards points, cashback, and vouchers. Some credit cards provide lifestyle benefits such as free club memberships or airport lounge access. These perks can vary widely between different cards offered by the same company.
To maximise your savings, choose a credit card that aligns with your spending habits. For example, if you travel frequently, a travel credit card might be ideal. If you spend a lot on shopping then a rupay credit card could be beneficial.
Remember to carefully consider the annual or joining fee of a credit card and compare it to the potential value of its rewards. Only choose a card if the benefits significantly outweigh the cost.
6. Pre-Approved Loans
Credit card companies often extend pre-approved loan offers to customers with a good credit history. These loans are typically based on your available credit limit, but some issuers may provide loans exceeding this amount.
A significant advantage of these loans is the minimal paperwork required. This means you can often receive the funds quickly, sometimes even on the same day. While getting these loans does provide you with short-term relief, it is important to remember that pre-approved loans can also contribute to improving your overall financial health in the long run when you manage it responsibly.
Closing Thoughts
As mentioned earlier, credit cards can be helpful tools for managing your finances. While the risk of debt is real, the benefits of responsible credit card use—from building a good credit score to managing cash flow, financing large purchases, and covering emergency expenses—can be quite beneficial. Additionally, the rewards and perks offered by many credit cards can provide added value, especially when they match your spending habits. By understanding and using these advantages, you can make credit cards a useful part of your financial strategy.
Author Bio
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
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