Is using Credit Cards a Bad Habit?

Have you ever been in a situation, where you needed urgent money for something really important, like booking a flight ticket for unplanned travel, or for paying house rent, or anything like that, but lack funds? Under such conditions, a credit card could serve you like a guardian angel.

This slice of plastic is undoubtedly convenient and a lifesaver in such cases. However, the question that arises is whether using credit cards is a good or a bad habit. In this blog, we will discuss the merits and demerits of using credit cards and help you understand, how to make smart use of a credit card.

What is a Credit Card?

A credit card is a payment card issued by a financial institution that allows you to borrow money on credit. You can use your credit card to purchase goods and services without having to pay for them upfront up to a certain maximum limit. Instead, you will receive a monthly bill, which you can pay off in full or in parts.

How does a Credit Card work?

When you make a purchase using a credit card, the credit card issuer pays the merchant on your behalf. You are then required to pay the credit card issuer back, either in full or in parts, at a later date. Simply, it's like a 'Loan' that you borrow and pay back to the lender. If you pay off your balance in full before the due date, you will not be charged any interest. However, if you do not pay off your balance in full, you will be charged interest on the outstanding balance. Also, sometimes there are no-cost EMI offers in which you will not be charged a single penny if you pay all installments on time.

Why Using a Credit Card isn't a Bad Habit?

Below we have mentioned factors that clearly indicate why using a credit card isn't a bad habit at all;

1. Rewards and Cashbacks

It is undoubtedly one prime reason behind the rapid acceptance of credit cards. Major eCommerce giants, be it Amazon, Flipkart, or Myntra, all of them partner with numerous credit card issuer companies to offer hilarious discounts and instant cashback schemes. Also, you get to choose whether you want to pay your bill at once or convert it into EMIs, and sometimes there are offers that wouldn't charge extra for such EMIs up to a certain duration. Suppose, you are planning to buy a good television model with the latest features for your house and you found one on an eCommerce website. Now while making use of your credit card to avail best offers you found out that you could pay the amount in parts(EMI) in the next 6 months without any additional charges. If the cost of this television is ₹50 thousand, after availing of credit card offers, what do you think, Isn’t it a smart choice to pay in parts and either invest the rest amount at a place where you can earn some returns or to just keep the amount as a saving or emergency funds? Other than eCommerce giants, a few shopping stores, restaurants, multiplexes, and websites that are into hotels and flight ticket booking businesses also have plenty of offers on credit cards.

2. Building Credit Score

Using a credit card responsibly can help you build your credit score. A good credit score is important when applying for loans or mortgages, as it shows lenders that you are a responsible borrower. The better the credit score, the more easily you get loans.

3. Could work as Emergency Fund

In life many times we need urgent money but don't have sufficient funds in our account, and most of the time we aren't comfortable seeking help from friends and relatives. For example, imagine that suddenly your mobile phone got damaged, obviously, you will need to buy a new one instantly if it cannot be repaired. Now, if you don’t have enough funds in your bank account, you can use your credit card in this case. Even if we ignore all rewards, no-cost EMI, and discounts getting instant money is a very big benefit in itself. When you have funds, you can pay back this amount at once before the billing date, without paying any additional charges. In the same way, you can lend money for emergencies like paying home rent, hospital bills, EMIs of car, bike, or a lot of other things.

4. Airport Lounge Access:

The rise in the airline business and people adapting it over other modes of transportation has led to overcrowding at airports, you would have definitely realized this while waiting in lines for check-in and boarding.

The overcrowding has raised the demands of facilities that a traveler might require at the airport, and this is why presently you get a cup of tea anywhere between ₹80 to ₹200, and a meal could easily drill your pocket by a minimum of ₹500. However, the convenience associated with a credit card isn’t just limited until booking a flight ticket for yourself. Credit cards can give you free of cost access to airport lounges. Such lounges have buffet meal options, fast internet, massager chairs, and much more. Although, many debit cards also have this facility, but have limitations like no access to international lounges or lesser accesses in a year.

Why Using a Credit Card Could Be a Bad Habit?

Even if you aren't a fan of the Marvel Cinematic Universe(MCU) and its superhero movies, I am pretty much sure that you would have definitely heard about Spiderman, one of their oldest and most famous fictional character. In Spiderman movie, there is a dialogue “With Great Power, comes great responsibility”

Now you can assume Credit cards as that power, and the outcomes would completely depend on how responsible you are while using it. Find out how using a credit card could be a bad habit below:

1. Temptation to Overspend

Credit cards can tempt you to overspend and lead to frequent impulse purchases. It can be easy to make purchases without considering whether you really need or can afford them. This can also lead to debt and financial problems. For instance, if you need to buy a mobile phone and while scrolling on an eCommerce website you found that you can actually buy a much more expensive phone because you are getting good offers and no-cost EMI options as well on your credit card, chances are that you can fall in such traps.

2. High-Interest Rates

Credit cards often come with high-interest rates, which can add up quickly if you carry a balance on your card. If you are unable to pay off your balance in full each month, you may end up paying more interest charges than the original purchase price.

3. Fees

Credit cards also come with various fees, such as annual fees, balance transfer fees, and late payment fees. These fees can add up quickly and increase the cost of using your credit card. However, if you use your credit more than the minimum transaction limit in a year, most credit card issuers could exempt you from any annual or maintenance fee.

Conclusion

So for the final verdict, if we talk straight without any fuss. We are very much sure that the habit of using a Credit card isn't bad in any way, only if we as users could control our emotions and take time to think before using it. To apply this to our life, make sure that you use it only for the things that you could have done or bought, with or without a credit card. Use it to take additional leverages in the form of rewards, discounts, and others, that will lead to saving money and managing your finances in a better way.