Praveen Kumar
Table of Contents
You might have heard a lot about credit cards online, people love to pay with their credit cards and other online transactions but sometimes we get confused about the actual difference between a credit card and a debit card. What’s the actual difference between these two?
Today we will discuss everything there is to know about credit cards and how you should use credit cards safely to avoid debt traps.
What is a Credit Card?
A credit card is a form of payment where you pay with money that you don’t have in your bank account, basically bank pays on your behalf, and at the month’s end bank will send you the bill for the credit card.
A credit card is a type of unsecured loan, in which the bank trusts you to pay all the bills at the month’s end that you have spent on the credit card.
Credit Card Vs Debit Card
Many people are often confused about credit cards and a debit card, So here is the simple difference between these two.
A debit card is the money that you currently have in your bank account and you can spend it anywhere with your card, issued by your bank.
A credit card is just like a temporary loan that banks or NBFCs provide you and you can take it via credit card, you can spend it according to your credit limit and at the end of the month they will send you the bills that you have spent over the month,
How to Get a Credit Card?
Before actually getting a credit card ask yourself do you need this. do you have a stable source of income to pay all the bills before the due date? Many people spend without thinking with their credit card and when the bill comes they are suddenly in the debt traps.
There is a famous saying that “Credit Cards are for the people who don’t need them“.
You can’t get a credit card just because you want it, generally, banks and NBFCs decide whether you are eligible to get a credit card or not. If you walk into your bank and ask for a credit card, the banker will check your credit score and your past records and decide whether you should be given a credit card or not.
When you are eligible, banks and NBFCs will automatically send you credit card offers. Also, many agents sell credit cards. You can contact them, and you can easily get a credit card after a few verifications.
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How to Choose the Best Credit Cards?
Choosing the best credit card is one of the hard decisions, there are many Credit Cards that you can get easily but they have many hidden charges that can bankrupt you and in the end, you will pay more than you spend.
There are some criteria you can verify before getting a credit card like :
Hidden Charges:
Credit Cards have many hidden fees, like annual charges, transaction charges, and many more you have to read the terms and conditions very carefully before getting one, sometimes agents will sell you credit cards saying there are no annual charges but they will send you bills, in such cases you have to raise the complaint and stop using the card immediately and don’t pay the fee.
Credit Limits:
The credit limit is the most important factor when getting a credit card it decides how much card limit are you gonna get. means how much maximum you can spend with your credit card. Generally, the credit limit is decided based on your credit score while is decided by banks.
What is a Credit Limit?
A credit limit is the maximum amount of money you can spend with your credit card. Generally, your credit score decides your credit limit. People are advised to spend only 30-40% of their credit limit to maintain a healthy credit score.
Your credit score is decided by many factors like your spending records, transaction history, and many more. To maintain a good credit score you have to pay your bills on time and if you have any existing loans keep paying the installments on time.
How to Use a Credit Card Safely?
Credit card is a very useful financial tool for people who know how to use them, if used carelessly they can cause financial risks like debt traps and bankruptcy. Here are a few things you should know before using a credit card.
Missing or Delayed Payment
Never miss your monthly credit card bills, if you do so they will start charging interest on the amount and it is very high varying from 15-18%. Generally, credit card bills are sent after 40-48 days means you have enough time to pay your bills.
Maxing your Credit Limit
This is the biggest mistake anyone can make, spending all of your credit limits can be dangerous and impacts heavily on your civil score. This often leads to debt traps and in the last, you will be unable to pay any of the money. leading you to bankruptcy.
It is advised to spend only 30-35% of your credit limit, as it maintains a healthy credit limit and also prevents you from getting in debt traps.
Cashing Out from ATMs
Taking cash out from ATMs using your credit card is also one of the mistakes you can make and for that they will charge you according to their interest rate. So you also have to avoid cashing out from ATMs.
Overspending
Credit Card is soft money which means you don’t feel it when you spend money from it, generally, you are not spending from your wallet so it doesn’t feel like you are spending your money until the bill arrives.
To prevent this from happening avoid paying for everything and control things you are buying unnecessarily, usually, we spend too much on dining outside when we have credit cards to avoid such things.
Sharing Credit Card Information
This is very obvious information everyone should have, you should not share your personal information with anyone, otherwise, you will start getting bills that you don’t spend. Avoid shopping on websites that are not safe. Or local grocery stores where your credit card information might get stolen.
Using Reward Points
Credit Cards give you reward points when you spend online and you can use those reward points to shop online, so don’t miss out on reward points, you can check your reward points on their website and shop there.
