Credit Cards, Digital Payments, and Misconceptions
Digital payments and cashless transactions are convenient and easy to use send or receive money. The government of India has been deploying schemes, incentives as well as strict laws to ensure a higher frequency of cashless transactions. Thus, with digital modes being promoted, Credit Card is a form of cashless transaction which is slowly going to rise in India. These are vital in today’s economy for the growing up millennials as well as the incoming generation of earners. In this article, we are going to suggest you look at keeping multiple credit cards and how it can help you manage finances better.
So is keeping multiple credit cards really bad? Many financial advisors would have you believe so. These advisors also have the crippling fear that their clients might run the risk of huge bills and might fall into a vicious debt trap. However, contrary to this belief of falling into a debt trap, bring an owner of multiple credit cards could push people to manage their finances even better.
Also Read: 6 things you should know before choosing a credit card
Multiple Benefits of Multiple Credit Cards
There are many benefits to having ownership of multiple credit cards. We list down some of the most salient advantages of being a multi-credit card owner.
For every credit card that you acquire, credit card companies grant the users with an interest-free period on all their purchases. For example, if the billing cycle of a credit card ends on the last day of the month say 31st October, the payment will be due in a time-period of 3 weeks. This means the payment will be due on 21st November, this gives credit card holders an interest-free period of about 50 days. This interest-free period, however, declines in size as the days pass by.
However, if an individual is in possession of two credit cards, for example, they can smartly manoeuvre and manage their expenses by utilizing the interest-free period of both credit cards efficiently to maximize cost savings.
Avoiding Interest after Rollover
Sometimes, people are at a dearth of liquid capital to pay off the credit card bill. In such cases, an individual has to pay a mandated 5% of the bill with interest and will be charged 2-3% on every further purchase on the rollover credit card. This high-interest rate can be avoided by the use of another credit card for further purchases by stopping purchases from the card with the unpaid bill.
Lower Rates of Balance Transfer
In the case of unpaid credit card bills, having multiple credit cards can help evade the high-interest rates by transferring your unpaid balance to another credit card. In an attempt to attract new customers, many credit card companies allow people to transfer their balances to the new cards.
Some banks do not charge for transferring the credit and non-payment of the pending bill. On the other, some banking organizations charge up to a maximum 1.5-2% which still turns out to be lower than the interest rate for the previous card which starts interest rates at 2-3%.
CAUTION: Getting into a habit of credit transferring to other cards could lead to a debt trap which could spiral out of control very fast.
Scoring the Best Deals
Credit card companies have multiple joint-venture tie-ups with major retailers of the biggest brands and service providers all around the country. Whether these offers are a limited time period or long-term they can help grab the best of deals on commodities.
The advantage of having multiple credit cards comes very handily in this case as the number of options for grabbing such lucrative deals increases significantly which, can only be a good thing. In order to avail the best benefits, you can purchase a bouquet of various credit cards best suited to your spending patterns.
Payment Option Alternative
Sometimes in spite of all the cashless options and the technology, your credit card fails to work and you do not have cash available. Having a second credit card handy will help by paying for purchases and help you out when one card fails to respond. This error could arise due to many reasons, a faulty POS machine, a chip error, error from issuing bank’s side etc. Best to have an alternative for safe-keeping.
Improving Credit Scores
The methodology and algorithms behind the calculation of credit score continue to remain a mystery to most of the population. However, it is pretty evident that Credit Utilization Ratio plays an important role in the calculation. In the simplest of terms, Credit Utilization Ratio is basically the amount equalling your outstanding balances divided by the total credit limit across all your active card accounts.
According to the general rules, a lower credit utilization helps achieve a better credit score.
For example, if you spend Rs. 35,000 out of the Rs. 1 lakh limit the credit utilization equals 0.35. However, if you are in possession of another credit card with a limit of Rs. 40,000 your utilization drops to 0.25.
Read: Types of Credit Scores
Thus, it is always advantageous to keep at least 1 extra credit card if not multiple credit cards. Follow our blog for tips like these.
At Finbucket, India’s top loan and investment portal, Credit Cards services are our specialities we also have services for investment in Mutual Funds, as well as loans like Home Loan and insurances like Health Insurance. Call us with your requirements at +91-8750008881 or drop us an e-mail at firstname.lastname@example.org.