Ramesh is a Marketing Executive who has just started his career. He
has read about the dangers of using credit cards and how they can lead
him to overspend. Ramesh uses a debit card linked to his bank account and
finds it a good alternative to a credit card. He gets a lot of offers
for credit cards and is attracted by the convenience they offer. Does it
help to have a credit history and will it add any value to his ability
to manage his financial situation efficiently?
Ramesh must understand the role that a credit card can play in his financial life to be able to use it to his advantage. He can manage his cash flow by using a credit card to meet his regular expenses. He must also make sure that he pays his credit card bills fully each month in a cycle that is convenient.
Making payments for regular expenses through a credit card is a good way for Ramesh to keep track of his expenses. The credit card statement and the charge slips will give him the record to make sure he stays within his budget. Credit cards will also help him meet expenses in an emergency when he may run short of funds. Overdrawing on his bank account in such a situation by using a debit card will come at a cost.
There are some situations when using a credit card is more advantageous than a debit card. Making an online payment using a debit card carries a greater risk since an online fraud can clean out Ramesh' entire bank account. Similarly, an error in charging a purchase to a debit card could mean that the amount will be debited from his account immediately and take time to reverse, and he may fall short of funds during this time. In case of a credit card, he can appeal against the error and may not be required to pay.
Credit cards give him the facility of making a big purchase even if he does not have the funds immediately. He can also convert large purchases into EMI payments without attracting rolling credit charges, provided he makes the payments regularly.
A credit card is the easiest way for Ramesh to build a history of good credit behaviour, based on which his credit score will be assigned. A good score will help him access loans on attractive terms when he wants them. Since Ramesh is aware of the risks involved, he is very likely to use a credit card responsibly. He should, therefore, consider taking one and use it for the advantages and convenience it provides.
Ramesh must understand the role that a credit card can play in his financial life to be able to use it to his advantage. He can manage his cash flow by using a credit card to meet his regular expenses. He must also make sure that he pays his credit card bills fully each month in a cycle that is convenient.
Making payments for regular expenses through a credit card is a good way for Ramesh to keep track of his expenses. The credit card statement and the charge slips will give him the record to make sure he stays within his budget. Credit cards will also help him meet expenses in an emergency when he may run short of funds. Overdrawing on his bank account in such a situation by using a debit card will come at a cost.
There are some situations when using a credit card is more advantageous than a debit card. Making an online payment using a debit card carries a greater risk since an online fraud can clean out Ramesh' entire bank account. Similarly, an error in charging a purchase to a debit card could mean that the amount will be debited from his account immediately and take time to reverse, and he may fall short of funds during this time. In case of a credit card, he can appeal against the error and may not be required to pay.
Credit cards give him the facility of making a big purchase even if he does not have the funds immediately. He can also convert large purchases into EMI payments without attracting rolling credit charges, provided he makes the payments regularly.
A credit card is the easiest way for Ramesh to build a history of good credit behaviour, based on which his credit score will be assigned. A good score will help him access loans on attractive terms when he wants them. Since Ramesh is aware of the risks involved, he is very likely to use a credit card responsibly. He should, therefore, consider taking one and use it for the advantages and convenience it provides.
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