We Indians love our credit cards. According to one report India had 24.5M credit cards in March 2016. Credit cards have made life easier but carry high interest rates, anywhere between 12-18% per annum depending on the card you have. However, if used judiciously, credit cards can actually help you save money.
Let me show you how.
Let’s say you bought grocery for Rs.5000 on 1st of the month in cash. If you use credit card this would earn you Rs.25 @6% as interest (just by keeping it in your bank account) by end of the month which would be 300 rupees for the whole year. Sounds less, doesn’t it. For an expenditure of Rs. 50,000 per month you would be saving close to Rs.3000 in a year. It’s the small amounts we save that matter in the long run.
Let’s say that your bank rewards you with 1% cash back on every purchase. Again considering an expenditure of Rs. 50,000 per month, you would save Rs. 500 or Rs. 6000 per year.
If your expenditure is substantial you could actually sign up for 2-3 cards and use each at place where you get more reward points for doing so. Like use one at a petrol pump where it gives you more points and other which has partnered with an airline, so every time you book tickets you earn more miles. This way you can maximize the points earned which then translates into more savings.
However, all this would make sense only if you are paying you dues on time i.e. paying your credit card bill at the end of each billing cycle. Otherwise the interest that you have to pay on you unsettled amount offsets the advantage of points earned.
P.S. given below are some examples of what rewards are offered by banks on their credit cards.
What do you think? Let me know.