Good reasons to use credit card instead of cash

Good reasons to use credit card instead of cash

Disclaimer 

If you are not diligent about paying your credit card bills on time then please do not use a credit card the interest rates on credit cards are significantly high which kind of lose the benefit that you are trying to achieve by using a credit card altogether 

I am not recommending that you spend a lot more using a credit card all I'm saying is that if you anyway have to spend your money on something please do use a credit card to actually spend that

Whenever you're making any kind of purchase there are many different ways that you can go about it you can pay by cash you can do net banking you can use a debit card or you can use a credit card. 

Let's talk about how using a credit card will help to take your money a lot further for expenditure that you are anyway doing. let's also take an example and at the end of it, we accumulate the benefits that you are actually getting from using a credit card.

Let's assume that you want to purchase a high-end home appliance like tv or a refrigerator which is going to cost about 50 000 rupees, I will tell you how to accumulate the benefits that you are going to get from using a credit card for this particular 50 000 rupees pen 

So the first benefit is that it is interest-free money so since you're anyway planning to make this expense that means this money is at some point in time needing to be paid or needing to go away from your bank account right 

So let's assume that you are actually making this expense at the beginning of the billing cycle of your credit card 

so what is a billing cycle so let's assume that your bill is generated on the first of every month you typically would get about 20 days to pay that bill so you need to pay it only by the 20th of every month or 25th of every month and your billing cycle typically starts from the second of the previous month 

So all the way from the second of the previous month till the 20th of this month or 25th of this month you have that period as interest-free money that the bank is giving you for using your credit card 

Assume that you are making this 50 000 rupees expense at the beginning of your cycle so you purchase it on the second that means you're getting 50 additional days of that 50 000 rupees using which you can actually do anything you want with it even if you leave it in your savings bank account you will get about 3 on that money that you're leaving over there 

So for 50 days that comes to about 200 rupees let's assume you're smart with your money right and you actually invest this money in a mutual fund like a liquid fund which gives about seven per cent per annum 

So for the 50 days that you are going to keep your money in that liquid fund, you will be earning about 500 rupees but remember there is a risk associated with putting your money in mutual funds and if you are doing that you should be willing to accept the risk

Let's assume that your risk hours and are only going to use the savings bank return as the benefit that you're getting from using your credit card 

So that is 200 rupees the next benefit is that a lot of banks give a zero per cent EMI so this is an extension of your previous point itself but you actually get to keep that money for a lot longer period of time 

let's say for that fifty thousand rupee you get a three-month zero per cent EMI benefit so that fifty thousand you're going to pay it over three months and not upfront again if you're smart with that money you can actually use the extra money to keep it in a liquid fund which would get you a lot more return of about seven per cent per annum 

But if you do take this option you will not get the option of discounts or cashback which I will talk about next which may be a lot more beneficial so you may want to weigh which is the better option for your particular purchase 

whether it is a zero per cent EMI with a seven per cent per annum return or if you are getting a discount or cashback which is going to give you a better benefit so before we move on to the next benefit 

The third benefit is credit card discounts and cashback if you have been online shopping or you go to any kind of appliance store or anything you do get a lot of benefits that are specific to specific cards, for example, there may be an offer that a chroma or amazon is running on 

let's say an HDFC card or an SBI card in which case you probably are going to get a five per cent or a ten per cent additional discount or a cashback into your account if you actually use those cards for that particular purchase 

So let's take a conservative number of five per cent as a discount so in our case uh for the 50 000 rupees spent five per cent comes up to about two and a half thousand rupees of savings just by using your credit card so like I mentioned a lot of times this discount or cashback could be higher almost as high as 10%.

The last benefit is credit card points so every single credit card that you have will actually have some amount of points that they give back to you for using the credit card for spending that could vary based on the type of card you are selecting based on the purpose of card that you are selecting so let's take an example again 

I will use half as a reference because I use an HDFC card currently so you have basic cards where you will get four points for every 150 rupees spent that you make 

then there are more advanced cards where you get five points for every 150 rupees pendant some of these cards also give additional discounts when you're doing an online purchase for keeping it simple for this exercise 

I'm not going to use that as a reference once you actually make these points you can redeem these points for a variety of things the simplest one is where you can redeem it for cash this gives you the least return for the points that you are earning using your credit card 

In other cases, you can actually redeem these points for products from various different brands the number of points for each product or the value of every single point depends on the brand that is actually making the offer if it is a well-known brand like amazon. 

The number of points that are required will be higher right so the value of your points will be lower when you are actually getting amazon vouchers but if it is a lesser-known brand where that brand actually wants to promote their brand 

You will get a lot more for your points if you're actually redeeming for that lesser-known one for simplicity of this exercise let's say that you're going to redeem cash right so typically the bank will redeem it back for your bill payment in my case with the HDFC card every three points gives me one rule okay so with that background 

Let's go back to our example for the fifty thousand rupees spent let's deduct the two and a half thousand discount that we made already based on the discount that the bank or the vendor is actually providing so with that I will be getting about 1600 points which if I'm redeeming it back for money I get one rupee for every three points that is equivalent to about 527 rupees in cash 

This is 527 rupees that you would not have had if you had not spent using your credit card so like I mentioned there are a lot more additional benefits some banks will have 10 additional on online purchase and so on for the simplicity of this exercise 

Like I mentioned before I'm not considering all those benefits so anything that you get additionally is a bonus 

So with all these benefits spoken about what is the overall accumulative savings that you are making for 50 000 rupees spent which you would have anyway done either using cash or using your debit card or net banking or whatever 

So you save about 200 rupees from keeping that money in your savings account you get another two and a half thousand rupees for discounts an additional 527 rupees based on the points that you have gained for making that purchase 

So in total about 3227 rupees this is money that you did not have if you had not actually used a credit card for this purchase this is quite a bit of money for a spend that you anyway had to do so tell me what are the reasons that you are or are not using a credit card for your purchases 

Drop me a comment I'm extremely curious to know so in addition to these there are a lot of benefits of using credit cards which I'm not covering in this article because this was about telling you the actual tangible cash benefits that you're gonna get 

So additional benefits could be fraud protection it could be insurance it could be travel insurance it could be access to airport launch lounges.

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 THANK YOU SO MUCH