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4 reasons why credit cards are better than cash

December 03, 2014 09:05 IST

If you do not overspend, we advise you to get yourself a credit card. It will open up a whole new world of benefits.

Many Indians hate credit cards. Just because a few people they know used the credit card in all wrong ways and got into trouble, doesn't mean that any person who uses a credit card is irresponsible. It is important to understand that the credit card straight away wins over cash in many aspects.

This article illustrates how!

Ease in travelling

Imagine you are travelling abroad. You want to buy an expensive gift for your wife, let's say a diamond ring, which could run into some $1000 (around Rs 60,000). Would you carry that much cash in a foreign country?

If you had planned to withdraw cash from your bank account, think again. Does your debit card allow you to withdraw that much cash? No.

Every bank sets limit over debit card swipes and withdrawal limits in a single day.

A credit card is a clear winner in this case.

After you lose it? What will you do after you lose money or it is stolen? Do you think it can be replaced?

Your credit card can be replaced after it is lost or stolen. Yes, it comes at a nominal cost, but still there is scope to replace it, but when it comes to cash? No way.

Build or repair your credit score

No, it is not like what you thought.

Cash transactions and debit card transactions are not reported to Credit Information Bureau of India Limit (Cibil) and other credit bureaus. So, you cannot build your Cibil credit score based on debit card usage. A credit card is any day a convenient way to build your Cibil score or repair your damaged score.

Credit card usage is a manifestation of your credit behaviour and also your credit card repayment pattern shows you financial discipline.

Rewards

Using a credit card can be rewarding if used wisely. Credit card companies or banks issuing these cards have tie-ups with top retailers, e-commerce websites, e-ticketing websites, malls, restaurants, cinema houses, etc.

The more you spend on your credit cards the more points you can collect that can be later redeemed from the wide range of offerings.

However, just to collect points one must not spend an amount one can't repay to the lender. Can you think of any such rewards or freebies by spending cash?

Anything else?

These days credit limit on credit cards easily touch Rs 50,000 to Rs 100,000. That is how much you can buy from your credit card.

Imagine carrying around that much cash! Moreover, sometime when you are extremely cash strapped you can just pay the minimum amount due on your credit card and keep sailing.

Please make sure that you chose this option as one off instance and not a regular practice.

Hence, it is important to understand that the only advantage, cash offers is controlling spends. If you are one of those who do not overspend, we advise you to get yourself a credit card. It will open up a whole new world of benefits.

Photograph: Roberto Rizzato/Wikimedia Commons

Lead image used only for representational purpose

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Rajiv Raj