Credit Card Myths Shattered! Check the reality behind the use of credit cards

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Representative image | Photo credit: BCCL

Highlights

  • Just like the pros and cons, there are many myths about credit cards and their use.
  • Withdrawing money on credit cards is the most expensive form of borrowing, as the interest charged is 2-3% per month or 24-36% per year.

New Delhi: Credit cards are used to make high ticket purchases to meet financial needs because they save people from carrying ring money with them. But this ease comes at a price because it can cause big financial problems for people if they don’t care about their credit card spending.

Just like the pros and cons, there are many myths about credit cards and their use that gullible people tend to believe. Below are these myths and the reality behind them.

1. Using credit cards makes you spend more, buy more- This is not always true because credit cards make payment convenient for the person. However, cardholders hardly bother swiping a card while making a payment, as they don’t feel the pinch of paying in hard cash. In addition, it depends on the financial discipline of the cardholder. If this is your case, you can use the budgeting app on your smartphone to understand your spending habits. These apps let the user know if they go over budget in any way.

2. Too many credit cards make finances difficult- Well, there is nothing wrong with having more than one credit card. Most of the credit card companies partner with retailers, brands and service providers to offer rebates, cash backs, vouchers, and more, lucrative deals to customers. For example, using a transport card may offer you a discount. Ideally, one can have three to four credit cards from different issuers in order to take advantage of most of the discounts offered by the different outlets.

3. With credit cards, one can accumulate reward points- You shouldn’t spend more just to earn reward points, as they are meant to attract customers. Spend on the things that are needed and according to your budget. Reward points lapse if they are not used within a specified time, they tend to lose value over time. It is best to cash out reward points periodically.

4. Use credit cards to withdraw money- Withdrawing cash from credit cards is the most expensive form of borrowing, as the interest charged is 2-3% per month or 24-36% per year. Then there is a cash advance fee which is usually a fixed amount of Rs200-500 and interest is charged on all purchases made during the billing cycle.


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