Tuesday, 6 September 2011

Credit card is a boon or bane

A credit card allows you to make cashless purchase through online and offline, Online utility bill payment, withdraw cash whenever necessary etc. No doubt it is convenient and a useful. But here let us determine a credit card is a boon or bane.  Through credit card you can make interest free credit for a short while, but if you fail to pay within the stipulated time you have to pay a heavy fine and interest from the day of purchase.

Some banks allow you to withdraw money from your savings account through credit card attached with the account and also allows you to pay credit card bill as auto debit facility. But if your savings account does not have enough balance, the bank debits a heavy fine which may be almost half of the bill amount with a minimum amount. It may debit Rs. 500 for a 600 unpaid bill.

IF you get a free service charge credit card, it is good. Some credit cards charge an annual fee. Please go through the terms and conditions of the credit card to know whether they charge an annual fee or not. Some credit cards charge annual fee from somebody else and free charge for others as per the bargaining capacity of the holder of the credit card.

Credit cards allow you to purchase things with an interest free period. But be cautious about whether they changed the policy and withdraw the interest free period to avoid a heavy interest loss. Credit card charges around 2% to 3% interest per month.

Credit card allows you to withdraw cash from Automated Teller Machines (ATM). But you must be aware that each cash withdrawal charges a processing fee of around 2% of the withdrawal amount and there is not interest free period for the cash withdrawal. You have to pay 2% to 3% interest per month from the very first day of each cash withdrawals.

Some credit card allows you to get cash back facility. A certain percentage of your purchase subjected to a maximum limit will give you back after the payment. But most of the credit cards will withdraw this facility by issuing an upper level credit card after a few months of issuing the first credit card.

Credit card is convenient to purchase things online and offline even when the end of the month where there is no ready cash with you. But be cautious about your purchase. Always purchase only necessary items. Unless you could not pay off the credit card bill fully in due date and will loss a heavy interest and penalty.

Credit card allows you to take loan through credit card without providing any documents. But be cautious that the interest on loan may be very high that of loans available from banks.

Credit card gives you a chance to pay in EMI for large purchase amount. But this EMI will charge a processing fee and interest.

Most of the credit card allows you reward points which may be exchanged for any goods or services. But be remembering that the credit card allows exchanging these dividends with the things or services of the firm where the credit card attached with a partnership program. If you are a person who travels more should carry a credit card which allows discounted food, hotel facility and travel facility. So choose a credit card according to your life style.

Last but not least you must remember that an annual payment of credit card over Rs. Two Lakh attract a query from the Income Tax office whether you disclose the credit card payment in your income tax return or not. You are liable to disclose your credit card payment, if it is more than or equals to Rs. 2 Lakh in a financial year.

A credit card can be boon or bane and it is according to the person who uses it. Read carefully the terms and conditions of the credit card and update frequently the changing terms of credit card. When you offer an upgraded credit card, always ask them the difference and extra charges of the new credit card apart from the present one. You should say yes only when you get some additional advantage and do not have any extra loss.

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4 comments :

  1. Good article clearly listing out the bad points of Credit Card. As they say Forewarned is Forearmed. We must realise that just like science Credit card is good slave and a bad master.

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