Greed is Permanent Slavery
Hello everyone, posting this blog after a long time. But I thought it’s the need for time & COVID have affected a lot of people, few are affected healthwise and few financially. This blog is for them who wish to keep liquid money in hand rather than spending on day to day purchases, which will help to overcome unseen scenario that might affect any individual and might need financial help.
Before I start the blog would like to make a note, this blog will be helpful only for the individuals who are confident enough that they can earn monthly, so that they can pay back the credit card bill.
This blog might be not that useful for everyone, as most of us know how to effectively use Credit cards, but the one who is not aware of the benefits of using a credit card, this blog will surely help them to understand the same.
Before we directly jump on the Benefits of Credit Card, let’s have a look at products provided by the bank and corresponding interest rate ( approx .):
- Home Loans: 8% Per Year = 0.7% Per Month
- Personal Loan: 12% per Year = 1% Per Month
- Credit Card: 36% Per Year = 3% Per Month
What is a Credit Card?
It’s similar to your debit card, but to have a debit card you need to have a savings account and money in that so as to make any transactions, but Credit Card can be provided by any bank without having an account in that bank.
Credit Cards are nothing but a certain amount given on credit so that you can make any transaction from the bank’s money, which has to be paid back on a specific date.
How the bank is benefited from the Credit Card Business?
Think logically, Banks business is lending money and earn from the interest they charge. Now as I have listed above the interest rate for products that banks offer and you will see credit card has the highest interest rate.
Every Bank has “Risk Appetite“, so how bank looks at the business:
More Risk α More Return
So what bank says, look boss we are giving you ‘X’ amount in form of Credit cards to utilize but we will charge 3% interest per month.
How to use Credit Card & its benefit?
Below are the basic information you should know related to Credit Card:
- What is your Credit Card Limit?
- How much amount is the bank allowing you to use in form of a Credit Card & later the Limit can be increased depending on your spending.
- What is the Billing Cycle?
- On which day you will receive the bill to pay back the utilized money.
How to use Credit Card efficiently?
Suppose I have ‘X’ Banks Credit Card:
- Credit Limit 2,00,000
- Billing Cycle: 1st of every month & last payment date would be the 30th of every month
Before I go in details of usage, will throw some light on billing cycle:
When you get any credit card, you will have a grace period of 50 to 60 days, grace period means how many days you can utilize the amount from your credit card till your billing cycle.
Let’s understand the credit card usage with an example:
As we discussed my billing cycle is 1st of every month, and the payment due date is the 30th of every month. Consider that today’s date is 2nd January 2020, I can utilize up to 2,00,000 rupee till 31st January 2020 as my bill will get generated by 1st February 2020, the payment of the bill generated on 1st Feb 2020 has to be done by end of the month, but as you know Feb month has 28 days (Non-Leap year) & 29 days (Leap year), so the bill due date would be 2nd or 3rd of Mar 2020.
Summary of above transaction:
- 2nd January 2020: New Credit card cycle started
- Till 31st January 2020: Suppose I utilize 50,000 out of 2,00,000.
- Bill Generation date: 1st of every month, in our case its 1st Feb 2020
- Bill Payment due date: 3rd March 2020
- Benefit: For 2 months you have utilized 50,000 rupees without any interest & if you pay back the money on or before the payment due date, you will not be charged any interest.
- Also, you get points on spending money using a credit card and that can be utilized for online shopping.
- If you are not able to pay back the money of time i.e on or before the due date, immediate next day your utilized amount (50,000 rupees) will be charged by 3% of interest.
You will have many question now, if we miss any payment then it will be burden on us and so on?
So when you utilize the risky bank product, follow a few rules that will help you from NOT falling into trap of credit card: