Credit cards – Play your cards right!

Like many Indians, you believe in cash, not credit. That's why every payment you make is in good old cash, and you may even snigger as your friends struggle with their credit card outstanding. Credit cards have often been called many things, sometimes not very complimentary by those who have been singed. But used the right way, they can actually prove very useful. So, before you swear to never have your name embossed on a plastic card, do take a look at the benefits of using one:

REWARD POINTS

Every time you swipe to make a payment, you stack up reward points. These are designed by banks to encourage you to use your credit card as often as possible. Most banks give you one reward point per Rs 100 spent. However, this varies from bank to bank. 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 even items that banks offer.

DISCOUNTS

As pay packets expand, the retail industry is also booming. Banks have not let the retail boom pass by, and have tied up with numerous stores of various sizes to offer deals and discounts if payments are made through their cards. From store discounts (in addition to what the stores offer) to interest-free equated monthly instalments for payments, banks go all out to lure customers. Many cards even offer holiday and travel packages on EMIs.

INSURANCE

In case the card is lost or stolen, the Cardholder is protected from unauthorized transactions in case the card is lost or stolen.

The Insurance claim will be processed as per Bank’s discretion in the line with the Insurance policy terms. All unauthorized transactions prior to 7 days of reporting of loss of Card to the Bank are eligible for insurance claim.

However, the fine print is that you have to use your card regularly. Certain conditions (required number of transactions or use of card within a certain period before an unfortunate event) have to be met to claim insurance.

BILL PAYMENTS

Times have changed. In today’s fast-paced world, there are a zillion things you must do, along with holding down a full time job, which rarely is strictly 9 to 5 anymore. Paying bills on time is important, but becomes a chore for most of us. Credit cards make this easier. With these, you don't even have to track your due dates. Most credit cards have a ‘bill pay’ facility under which you can authorise your card to pay your bills automatically – and thereby, on time, which means you don’t end up paying fines. The amount due will be debited from your card. Most cards offer this service for free. However, some charge a nominal fee, which is less than the cab fare or petrol cost of driving down to a payment counter and paying the bill physically.

PERSONAL LOANS

We all have money emergencies. And for all their 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 can help. Most cards offer cash-on-call for emergencies – and while the interest rates are quite high, the process is simple involving no paperwork. Many cards also keep coming up with low-cost personal loan offers, sometimes at interest rates that are at par with normal bank rates for personal loans.

These benefits coupled with the ease of payments make credit cards a good alternative to cash. However, you must remember to be disciplined. This means paying your bills on time and not revolving your outstanding balance. If you get into that cycle, the interest you pay will be significant, cancelling out almost all benefits of owning this instrument.

The author Lovaii Navlakhi CFP is the CEO of International Money Matters and The Financial Alphabet

Disclaimer: Copyright Kotak Mahindra Bank Ltd.