Used right, credit cards make good friends

Debt trap, credit quicksand, money tangle... credit cards have often been called a number of names by the savvier-than-thou. But used right, they can actually prove to be boons. Here are some benefits of owning the plastic according to Kunnath Santosh of Perfios.com...

Like many Indians, you believe in cash, not credit. That's why every payment you make is in good old cash even as your friends struggle with their credit card outstanding. But before you swear to never have your name embossed on a plastic card, do give a thought to all the benefits that they come with. Used right, credit cards make good friends.

Here are some of the pluses of having a credit card:

1. Reward points

Every time you swipe the plastic to make a payment, you stack up reward points. It's one of the benefits banks give to ensure you use your credit card as often as possible.

Most banks give you one reward point per Rs 100.

However, this varies from one bank to another. When you've stacked up a considerable number of points, you can redeem them for a basket of goodies, from gift vouchers of big brands and retailers to items that banks offer.

If selflessness is your virtue, you can even redeem your reward points for donations to charity organisations including Child Relief and You, or CRY.

In short, unless you revolve balance, you have nothing to lose and everything to gain by using your card instead of cash to make payments.

The author is co-founder and director of Bangalore-based Perfios Software Solutions Private Limited. www.perfios.com is a personal finance software solution that provides a 360-degree view of your personal finance, with very little manual intervention.

As pay packets expand, the retail industry is booming in the country. Banks are not about to let the chance to ride this retail boom go. And so, they tie up with stores of all shapes and sizes to offer deals and discounts if you pay through their cards.

From discounts at stores -- and additional discounts over and above what stores offer at their sales -- to interest-free equated monthly instalments for payments, banks go all out to lure their customers.

Many cards even offer holidays and travel packages on EMIs.

If you are a frequent flier, it makes all sorts of sense for you to have a credit card. Most cards offer 2.5 to 5 per cent discount on airline tickets for international travel and 1.5 to 3 per cent for national travel.

From accident insurance to baggage insurance, credit cards cover your back when something bad happens -- provided that particular something bad is in their list of unfortunate events.

The main benefit, however, is that all purchases made through your card are insured for a certain period of time. Typically, this is 180 days, or six months, from the date of purchase. If you happen to lose the item purchased due to a fire or theft you can claim insurance up to Rs 50,000.

Then there are other benefits such as personal accident insurance, purchase protection, lost baggage cover and others.

For example, if the cardholder has an accidental death, the bank offers insurance of anything between Rs 200,000 and Rs 4 million (Rs 40 lakh) depending on the kind of card you have.

The amount of cover depends on the kind of accidental death. For instance, cover for a road accident is lower than that for an air accident.

The fine print, however, is that you have to use your card regularly. There are certain conditions -- such as required number of transactions or use of card within a certain period before the unfortunate event -- that have to be met if you want to claim insurance.

If you book your air tickets through a card, you are insured in case the plane is hijacked or if you lose your baggage. The cover varies from one card to another and from domestic travel to international.

Times have changed. Once upon a time, a 9-to-5 job meant strictly that.

These days, you have to enter office at 9 but rarely do you get to leave at 5. Given this, there's hardly enough time for yourself, let alone for the zillion chores that pile up when you're not looking.

Perhaps one of the biggest chores is paying bills -- credit cards, electricity, phone... there seems to be no end to the number of lines you have to stand in to pay your bills. Enter the plastic card and you don't even have to track your due dates anymore.

Most credit cards have bill pay facility, wherein you can authorise the card to pay your bills automatically. Even if you forget the due date, you won't end up paying hefty fines. The amount due will be debited from your card.

Most cards offer the service free. However, some may charge a nominal fee, which actually works out less than the cab fare or petrol cost of driving down to the payment counter. One less thing to worry about.

We all have money emergencies. And for all the promises of 24-hour cash, personal loans take time to process. Besides, you need to get all your paperwork right. This is where credit cards help.

Most cards offer cash-on-call for those emergencies that just can't wait. While the interest rates of these are quite high, they come with a simple call and no paperwork.
Many cards also keep coming up with low-cost personal loans offers, sometimes at interest rates at a par with normal bank rates for personal loans.

When in money trouble, help is just a call away with your plastic. These benefits, coupled with the ease of payments, make credit cards a good alternative to cash.

A word of caution here.

You must remember to be disciplined with your cards. This means paying your bills on time and not revolving outstanding balance.

If you revolve your credit card outstanding, the interest you pay will be significant, cancelling out all the above benefits.

Credit cards may be bad masters but they do make great slaves. Play your cards right!