Credit Cards are loaded with incredible, innumerable benefits. Besides making money management easy, they offer fabulous rewards and perks that, if leveraged prudently, can significantly reduce your expenses. But most Credit Card holders in India hardly know the true value their Credit Card holds, while others are too scared to even apply for them. Yes, the myths surrounding Credit Cards are astounding, and they’re even costing you money. Let’s bust these myths, shall we?
Credit Card Myths That Need Addressing
1. Debt vs Preparation For Necessary Debts
Myth – Credit Cards Always Mean Debt:
For most people in India, a Credit Card is synonymous with debt – the kind that engulfs them into a trap from which they can never recover.
Fact – Credit Card Prepares You for Future, Necessary Debts
A Credit Card is a valuable tool that prepares you for when you truly need a loan/debt. Each time you pay your Credit Card bill, you build and increase your credit score. This score determines the interest rate lenders offer when you need a loan. A high credit score results in lower interest rates, whereas the lack of credit history gives lenders no metric to judge your credit repayment capacity. This results in higher interest rates, making the loan more expensive.
2. Minimum Amount Due vs Full Payment
Myth – Paying The Minimum Amount Due is Enough:
Rookie Credit Cardholders see the minimum amount due section on their Credit Card statements and think that paying that much is enough.
Fact: Interest Piles Up and Debt Grows
Creditors often give you sufficient time to pay off your dues, but when they are not paid in full, they charge interest on outstanding dues. With every day of delayed payments, the interest tends to compound. As such, minimum payments result in piling interest rates, which can prove incredibly costly. As your debt grows, your credit score plummets, and it impacts your future loan approval chances, with lenders charging higher interest rates.
3. One Credit Card vs Multiple Cards
Myth: More Cards = Bad Credit
Another common myth most people believe is that one Credit Card is enough; that applying for more than one card results in bad credit.
Fact: Responsible Use Across Multiple Cards Strengthens Your Credit Profile
No two Credit Cards are built the same. You can find various, lifestyle focused-cards offering focused benefits. It is thus encouraged to apply for Credit Cards online, from different creditors, based on your specific needs. So long as you keep the credit utilisation limits under check, and pay off your full outstanding dues on time, you can obtain multiple cards. In fact, getting approval for multiple Credit Cards makes you appear creditworthy and strengthens your credit profile.
4. Cash Withdrawals – Free vs Actual Charges
Myth: Cash Withdrawal on Credit Cards is Free
Many first-time Credit Card users believe that the cash withdrawal facility on Credit Cards actually comes free of charge. They believe that they can use their Credit Cards like their Debit Cards.
Fact: Each Cash Withdrawal Entails a Fee
Your Credit Card comes with a specific cash withdrawal limit, which is typically 20%-40% of your credit limit. While you’re generally not charged anything when you swipe your Credit Card for payments, cash withdrawals on Credit Cards are always chargeable. Most creditors charge either a minimum flat fee (₹250-₹500), or 2.5% to 3.5% of the amount withdrawn, whichever is higher. Being oblivious to these charges and withdrawing cash recklessly can prove rather costly.
5. Rewards – Unnecessary Hype vs Lost Money
Myth: Rewards are Hyped – They Don’t Really Matter
Yet another mistake most Credit Card users make, is believing that the rewards on Credit Cards often lack substance and can’t be practically leveraged.
Fact: Not Leveraging Rewards Equals Lost Money
Every Credit Card comes with a plethora of rewards, which, if you leverage smartly, can save you a lot of money. The savings can be on flight tickets, online shopping, entertainment expenses, and more. You can even leverage the cashback benefits offered on various Credit Cards. As such, when you apply for Credit Cards online, consider your lifestyle habits and get a card that offers rewards that best serve your needs. In doing so, you can save a lot of money.
Final Word: Your Credit Card can be your best friend or your worst enemy, depending on your usage. By getting a Credit Card and paying bills on time, you can start building your credit score and take advantage of low interest rates on loans. You can also save money by leveraging the rewards. Overusing the Credit Card, on the other hand, can put you in excessive debt and prove extremely expensive. Whether it proves costly or cost-saving depends entirely on you.
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