Credit Cards : When do we need them?
A lot of videos by noted YouTube influencers have been doing the rounds about Credit Cards and their benefits and demerits, some have exaggerated the benefits which others have missed highlighting the true need for a credit cards.
So here is my take :-
My Spending Increased!
Now, the first thing a credit brings you is easy access to credit, which it did even in my case, it just gives a certain sense of assurance that, no matter which day of the month, you will always have enough to buy whatever you want. Which would also mean that you do end up buying things which you should not have. As during the pandemic, when families were curtailing their non-essential spending and cutting down on waste. I somehow managed to spend in excess of Rs 3.5 lacs over a 1 year period during the peak of the pandemic still surprises me. Now, not all my purchases were frivolous in nature, however I did end up buying things I did not need. Even after being fully conscious of spending conservatively during the pandemic as this LinkedIn post of mine from April 2020 suggests.
Reward points:- Not worth it if you have a Basic Credit Card:-
People do point out that using credit cards help accumulate reward points which can be redeemed later for gifts. While this is true, it doesn’t tell the whole story. I had a basic credit card based on spending which should include a majority of people. Having spent in excess of 3 lacs over a one year, I had just about accumulated enough rewards points which would have got me a basic Rs 700 Trimmer from Syska. That’s it! So, was all that spending worth it? No!
My card did provide for lounge access at the airports and I used to use it frequently at IGI Delhi and Bangalore Airport. However, I missed reading the finer print. The lounge access was only for Airports at the 6 major cities in India, Therefore, when I moved to Pune and tried to access the lounge there, I was in for a rude shock when the person at the reception told me that the my credit card was no good.
Why I do not prefer EMI’s
Now, I have always been against buying anything on interest bearing EMI, logically if you can’t afford it, then you ideally should not be buying it. In many cases because the EMI option is available, thus people are always enticed into buying a product they do not need. Even more so, in case of No-Cost EMI’s
However, I’m still a bit ambivalent about No-Cost EMI as I do see utility in these, now many have pointed out that No-Cost EMI’s are not always No-Cost as interest costs are somehow built into the price, but still if you have a complete control over your spending and you are only buying something which is absolutely essential, No-Cost EMI’s do have a certain utility as customers are expected to payoff the principal in 3 or 6 months and not more than that. So, if you have to buy a laptop for 60K, rather than paying that money upfront, paying it over 6 months in 6 installments of 10K each does help in easing the pressure on ones cash flow, it also makes sense from a time value of money perspective.
So, why do I still have a credit card ?
It can bail you out when you most need it:
so, basically for any average Indian the credit card is the insurance against any last minute unplanned expense. So imagine, it is the end of the month and you are running low on cash and cutting down on expenses. Then, you have a sudden family emergency and need to fly from one corner of the country to another at the last minute. Usually a last minute ticket like this can cost close to Rs 15000, this is where a credit card comes in handy. Credit card gives you advance credit so you can go ahead and book that ticket to be with your loved ones. The same also holds true when you have a sudden medical emergency and do not have insurance. Credit card will ensure that you can pay for those emergencies while you wait for your next paycheck. This also helps you avoid the embarrassment of asking your friends for money.
Mistakes I made and my learnings
So, as I mentioned that I spent a lot during the pandemic (more than usual), the one mistake I made was that I started using my credit card for all my essential purchases. In hindsight, maybe that wasn’t the best strategy as it clearly blurred the line between essential purchase and non-essential purchases. As irrespective of what you are buying, it becomes an impulse to pull out you credit card for every purchase you make. Doing this over a period means that you completely lose track of you credit card expenses. Thus the spiraling credit card bills.
So, now I’m back to doing the basics, using my debit card for essential purchases and reserving my credit card for other purchases which may be deemed as non-essential in nature.
Thanks for reading!