Convenience Cards

Over the years, Indians have been averse to credit cards. This is primarily because they believed that spending through credit is a sure shot way of getting into the debt trap. Of course, movies highlighting the sad state of a borrower did not exactly help matters. And even the local kirana shops have the famous lines Áaj Nagad, Kal Udhar (cash today, credit tomorrow).

But in the last decade, things have changed. Families are more comfortable now with home loans, personal loans and credit cards. The ‘new Indian’ is willing to splurge, even if it is on credit. No wonder, the bank credit growth in the last two years have been to the tune of over 25 per cent.

However, in case of home loans/personal loans, one is normally clear about the rates of interest being charged. But spending through credit card is an all together different ball game. With interest rates as high as over 3 per cent month, one actually starts feeling the pinch when one overspends.

But the situation is not actually that scary. And it is all about right timing. Credit cards can be a useful tool at the hands of savvy consumers who can effectively use the benefits offered by cards.

One of the big advantages of using the card is ‘the float’ that is given to you the by the banks. The float basically means that you can make payment on the expenses being incurred once the bill is issued by the credit card company and within the stipulated grace period. This is generally 15 days. And during this period you are not charged any interest.

Let us see how this system works. Say you purchase a washing machine on April 15 worth Rs 28,000 and pay through credit card. If the billing date was 14th of every month, you would get nearly 45 days of credit. That is, 30 days since the next bill would be issued and another 15 days as grace period to make the payment for the same. So we can see that if you purchased washing machine on 15th of the month then you can enjoy free credit float for 44 days. However, if the purchase is made even two days before the 15th, that is, on the 13th of the month, then you can enjoy a free credit float for only 16 days. So by just purchasing the washing machine 2 days later, you can enjoy credit for an additional 28 days.

The situation gets more interesting when you have more than one credit card and with a 15 day difference in payment cycles. This will help you to take the advantage of two different cycles of the month. Of course, there are certain expenses, which we cannot hold over like an urgent air travel or medical expenses, here with the help of 2 credit cards with different billing cycles, you can get the maximum benefits.

Moreover, there are other ways you can enhance your benefits from credit cards. Today there is a wide variety of cards that are available in the market. But you need to benchmark them on key features such as wide acceptability, zero annual fees, no fuel surcharge, good 24-hour helpline, Internet access for account viewing, SMS updates and a truly rewarding loyalty programme.

Accordingly select the top two cards and make them your ‘first’ and ’second’ preferred card for use. Further, besides enjoying the maximum possible credit period, try to get the billing cycles of preferred cards fixed in such a way that their due dates fall 15 days apart. There are certain banks that offer up to 21 days of grace period as well. In the recent years, the development of reward and discount programmes for credit card users has become a big thing as banks are in competitive mode. Therefore, the discounts and rewards have become more and more attractive. For example, office supplies, travel, software and phone services. You can take advantage of them as well by using the credit card to lower your expenses.

The float is of good convenience, but don’t use it greedily. The luring malls and credit cards make a very deadly combo. I have seen many people trapped into ‘impulsive’ buying practice. It is quite obvious as they do not have to pay there and then. If you have the discipline to pay of your balance at the end of each month and not spend more than you have (just like a checking account). You will basically get the credit card service for free – paid for by people who don’t have enough discipline to pay off their balance each month.

It is important to know that credit card is a financial tool that needs to be used responsibly. While it ensures cash flow, it is not advisable for customers to borrow for a longer period of time. Use it effectively and take good advantage of the time line and clear your debts, without any additional costs. I advocate use credit cards as ‘convenience cards’.

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