The unexpected arrival of Covid-19 has had a significant impact on the Indian economy. It has led to job-cuts, high pay cuts, and disruption in businesses processes. The effect of pandemic also extended to the personal financial health of families and individuals. For people who faced a severe economic crisis looked towards emergency funds to survive. Some even took the help of their credit card to manage monthly expenses.
If you are also among those using credit cards during the pandemic to maintain monthly expenses, you should know its pros and cons beforehand. It will help spend carefully and not indulge in overspending or non-useful purchases.
Pros of Using a Credit Card
- Provides Financial Assistance
Credit card companies are issuing relief amid the COVID-19 outbreak. Credit cards enable you to continue everyday life without making any lifestyle changes by helping you pay for purchase instantly. Having a credit card eases the worry of denting the account balance.
- Enables Building Credit History
You can build a CIBIL score with credit cards. It enables banks to view an active credit history based on your card repayments and usage. Banks and financial institutions often check this record before lending you a loan. CIBIL score of above 750 is generally considered as a good credit score. If you want to take a loan in the future, make sure you have required credit score.
- EMI Facility
When you plan to make a large purchase without using your savings, you can choose to defer the payment with your credit card. Besides, you can opt to pay in equated monthly instalments. In this manner, you will not have to pay a lump-sum amount and dent your bank balance.
- Offers and Incentives
Many banks provide credit cards with offers and incentives after you start using it for specific services. It encompasses cashback and reward point accumulation each time the card is swiped, which can later be redeemed for paying outstanding card dues. Sometimes, you can also avail discounts on purchases made through credit cards on flight tickets, holidays and others.
- Flexible Credit
With credit cards, you get an interest-free period, which is a time when your outstanding credit is not charged any interest. Usually, ranging between 45-60 days, it enables you to avail free, short-term credit on payment of the entire balance due by the bill payment date. Therefore, you can benefit from a credit advance without having to pay the charges of having an outstanding balance.
- Card Protection
Some banks offer additional protection for credit cards in the form of insurance for damaged, lost or stolen cards. You can use the statement to vouch for the claim if you wish to file one.
Cons of Using a Credit Card
- High-Interest Rate
In instances where you do not clear your dues on time, the amount is carried forward, and interest is charged on it. Further, this interest is accrued for a time on purchases that are made after the interest-free period. The interest rates for credit cards can be quite high, with the average rate being 3% per month.
- Chances of Fraud
It is uncommon, but there are chances that you might face credit card frauds. Due to the advancement in technology, it has become easy to clone a card and gain access to confidential information. But you can avoid this by checking the statements carefully for purchases that look suspicious and informing the bank immediately. The banks can help you in solving the problem if it is genuine.
- Chances of Overspending
The disadvantage of having a credit card is that the bank balance stays the same due to revolving credit. Credit card limit might tempt you in purchasing unnecessarily initially. You tend to overspend than what you can pay back, which begins the cycle of debt.
Hence, keeping these pointers mentioned above in mind, you can determine your requirement of a credit card purchase. If you spend wisely, it can help you in more than one way. Especially if you opt for a credit card from reliable banks like Axis Bank, that provide several benefits to its customers. They offer complimentary flight tickets, waiver of fuel surcharges and discounted deals on hotel bookings and restaurant orders.
Spending credit cards wisely is always advisable. Let it help you in building a good credit score and maintain expenses.