Credit Card – SAVE while you SPEND

I am sure that till date, most of the articles u might have read related to Credit Cards must have advised you not to use credit card…Now u must be wondering why i am writing an article on Benefits of Credit Card and advocating its usage…Reason is very simple becoz of huge benefits linked to Credit Card…At the same time we should remember following points while using credit card else it will become headache for us

1. Credit card should be used Wisely, Judiciously & only for unavoidable/necessary expenses. Credit Card should be avoided for Impulse buying.
2. Credit Card usage should not be more than 60% of ur regular monthly household expenses e.g. if ur income is 100 Rs and Monthly Household Expense is 80 Rs then Credit Card bill should not exceed 48 Rs at any cost thus by maintaining financial discipline, we can reap in benefits of Credit Card
3. Credit Card should be avoided for Luxury Spends until & Unless we have clear cut re-payment plan for same e.g. if i bought LED TV today for 1 Lac Rs so i should have visibility on how will i re-pay the amount…Blind Luxury Purchases using Credit Card will land us in big trouble.
4. It is always advisable to keep only 1 Credit Card for better control on Finances
5. If any of your Family Member is also using credit card like Wife, Children etc..It is advisable to apply for Add-On cards for all family members for maximum benefits in terms of Reward points & better control on family finances
6. Last but not least, Safety of Credit Card (to avoid misuse) is owners responsibility

Coming back to benefits associated with Credit Card, I will quote examples with each of the benefits and calculate the monetary benefit arising out of same…Post listing all the benefits, we will sum total the annual benefit attached

1. Interest Free Credit: Most Credit Cards provide interest free period of upto 50 Days, just to clarify it doesn’t mean all transactions will get interest free period of 50 Days…Now take e.g. my billing date is 17^th of Every Month and post bill is generated, I get 20 days to pay back the amount..What it means if I made purchase on 18^th (Next day of bill generation), I will get 50 days of interest free period and any transaction made on 16^th (A day before bill generation) i will get only 20 days interest free period…Therefore it is advisable to plan all big purchases immediately after bill generation to get maximum interest free period, It will help in maximum savings. In Financial terms it’s called Front Loading of Purchase.

 Now if we assume, that average monthly bill of person A is 1 Lac during the year and average interest free period is 35 days (assuming transactions are equally spread between 2 billing dates i.e. interest free period for transactions will vary between 50 Days to 20 Days). If u front load high value transactions then benefit will be maximum but for simplicity i am assuming equal spread…Also we should avail Auto Debit Facility so that amount gets deducted on last date of payment…So effectively, in layman terms it means u have availed a personal loan of 1 Lac Rs for 1 year becoz on monthly basis my average balance outstanding is 1 lac Rs….The interest rate on personal Loans is 15% so you have saved cool 15k during the year by availing interest free credit of 1 lac on month basis or if u take conservative FD interest @ 9% p.a. then savings on 1 Lac average billing is 9k for 1 year…We will take FD interest becoz outstanding amount is lying in ur bank account which can yield FD interest.

2. Reward Points: Most of the bank’s credit 2 reward points on spend of every 150 Rs effectively 1 Reward Point for every 75 Rs…Now again taking same e.g. of Point No. 1 assuming 1 Lac billed amount per month then Yearly spend is 12 Lac Rs therefore user has accumulated 16k Reward points…Each Reward point is roughly worth 33 Paise becoz u get 500 Rs worth product for 1500 Reward points…Therefore 16k reward points are worth Rs 5280 and u get additional benefit worth Rs 5280, which is saving only

3. Interest Free EMI Facility: Currently most of the banks including HDFC Bank is offering “To convert your purchase into 3, 6, 9 or 12 Months interest free EMI”….They have tie up with almost all big names like LG, Croma etc…Recently i bought LCD TV from LG Showroom and converted the full amount into 9 Interest free EMI’s..Since i made purchase on next day of my billing date so effectively i got credit for 10 Months instead of 9 Months…Normally we make 2-3 Big purchases every year which can be converted to interest free EMI & assuming total transaction value of 1 Lac therefore @ 9% interest we saved 7500 Rs per annum

4. Cash Back: Normally Credit Card provided offer Cash Back through tie up with travel portals, retail store etc…The value is between 250 Rs to 500 Rs..Assuming we travel by air 3-4 times during the year then we get cash back of 1500 Rs which is saving for us

 5. Discounts and offers: During normal course u can avail lot of discounts and offers on ur routine purchases e.g. recently when i subscribed to Business World for 1 year i got annual subscription @ just 350 Rs instead of regular price of 700 Rs through HDFC Bank Credit Card therefore i saved 350 Rs in 1 transaction & sometime back i got discount of 40% on Flower bouquet of 1000 Rs….We also get discount of 1% to 2% on bill payments or other routine payments by using credit card…Some retail stores give special discounts to Credit Card customers of particular bank…Assuming we avail such benefits once every 2 months & regular discounts then we can save approx 2000 Rs during the year…

Now adding all the savings which we calculated from point 1 to point 5…Can u imagine we saved cool Rs 25280 during year & it’s totally free i.e. without any additional cost to us…This calculation was done based on assumption that we follow normal routine without tweaking above mentioned benefits but By some other intelligent interventions i.e. by front loading high value purchases, keeping track of offers on regular basis, availing interest free EMI for most of purchases, we can easily double the benefit to 50K per annum which means cool 5% Savings on our total spend…It is always advisable to get credit card from Market Leaders like HDFC or ICICI becoz of sheer volume of business they can provide best offers to customer as they can negotiation good deals with merchants.

Besides this, we should also consider other benefit of improved CIBIL Score, if we pay all dues on time….As it shows, credit discipline followed by user and tomorrow if u wish to avail Home or Auto loan then this credit discipline can help u in getting better loan terms.

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