While growing up, I have often heard from my father that credit cards are like bad companions and they will end up destroying you financially. During the Coronavirus pandemic, I did a handsome amount of research on credit cards and found a unique way to make money using these evil cards. Let's learn all about it in this article.
Before getting into the topic, let me tell you why credit cards are bad? It is bad because it makes you think that you have money while the truth is different. And then there are the high-interest rates associated with credit cards. You are charged an interest of 30-40% annually for using your credit card provided you have not paid your dues in time. Clearing the dark side out, let's go on to how can credit cards be good.
Why are credit cards good?
The first and foremost thing that you need to take into consideration to make your credit cards good for your financial well-being is the fact that your expenses using a credit card should only be for that amount you already have. This is the only way to ensure that when the due date arrives to pay your credit card bill, you will be able to pay your bill wisely and not default on it making you susceptible to the 30-40% interest rates which will eventually destroy you. Now let us actually dive into the good side of credit cards.
Rewards/Cashbacks/Discounts
Being an Indian, I love rewards or cashback or discount offers on my purchases. Be it a voucher for my food order or a 15% off on my OTT subscription or 10% cashback on my personal care products. I am getting products at a cheaper price which I would not have if I were not using my credit card to pay for them. These might not feel much to you but over a long period of time, I save a good amount of money.
An interest-free loan of 30-40 days
Let's take the month of June as an example. All the purchases that I made through my credit card will be billed at the end of this month i.e. on 30th June. I need to pay it before the due date which can be 5-10 days later depending upon the policies of the credit card provider. Technically speaking if I made a purchase of say ₹5000 using my credit card on the 1st of June, I need to pay it back after a month and that gives me a 30-day interest-free loan. And here is how I make money from this 30-day interest-free loan.
Suppose ₹10,000 is the monthly expenditure that I bear on an average for my needs and wants. Can be my grocery, my wifi bill, or whatever. The amount mentioned here is just an example. I invest this ₹10,000 in a liquid mutual fund. If you do not know what a liquid mutual fund is, it is one of the debt funds which provides very modest returns at around 5% but they do not have any such exit loads and a very minimal expense ratio. Moreover, there are very minimal risks associated with them. To understand more about the concepts of exit load, expense ratios, and the different types of mutual funds, I recommend you to go through my article mentioned here: WHAT ARE MUTUAL FUNDS?
By doing so, I earn some money absolutely free for which I do not have to take any risks or have to spend some amount from my own pocket. Saying so, this amount is not big as well but over the years, with an increase in your net income and your credit limit, this can go up.
Building your credit score
Each and every person in this country who is availing a loan, be it a home loan, a student loan, or a credit card loan, has a credit score that reflects how regularly and how disciplined is the person in paying off his/her debts. And the next time you go to apply for a new loan, the issuing bank will always go through your credit score. Looking at this credit score, your loan application might be rejected if your score is bad, you might get a loan at very high-interest rates or you might get it at a low-interest rate provided that you have a good credit score.
Now, by using the credit card and repaying my dues before the due date, I am working on building my credit history which has the potential to build my credit score over time. So, in the future, if I am in need of a loan, I will be able to avail it at a much better price.
I personally use "Groww" to invest in mutual funds and track them and so far I do not have any complaints against them. You can just search "liquid funds" in its app or website to start investing in index mutual funds. This is not sponsored. You can use any platform of your choice.
If you are planning to open an account using Groww and invest in mutual funds, you can use my referral link, through it both of us can get ₹100 deposited in our account when you activate your account on Groww. It is a win-win situation.
And finally, we have made it to the end of the article. I hope this imparted some value in your life. Consider giving a like and share it among your peers. To get notified of new articles, sign up to the NerdyTree.
Let me know your thoughts on credit cards in the comments.