Updated : Jan 17, 2020.
There’s always this debate going on whether credit cards are good to have or they are bad. Some love it for the great benefits it has to offer while others believe it can lead to debt.
I am someone who has been using credit cards for many years now and sees credit cards as a great opportunity, that if used responsibly, can save you a lot of money every year.
In fact, more than Rs 10,000 every year.
Whether it is discounts, exclusive offers, rewards points, cash backs, or even interest-free EMI’s – credit cards provide you with many money-saving options that can help you save thousands of rupees and can even get you a foreign trip with your family.
Let’s explore in more detail, how owning a credit card can save you a lot of money that I have been talking about.
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- #1. Helps Build & Improve Your Credit Score
- #2. Saves Money for Bloggers & Online Entrepreneurs
- #3. Earn Interest During Interest-Free Period
- #4. You Get Exclusive Special Offers & Discounts With Credit Cards
- #5. Saving On EMI Transactions
- #6. Helps Avoid Borrowing at High Interest Rates When Out of Money
- #7. Welcome Gift (SignUp Bonus)
- #8. Get Reward Points & Cashback Benefits
- #9. Get Special Benefit With Co-Branded Credit Cards
- #10. You get Bonus Saving
- #11. Protects You from Financial Loss
- #12. You Get Complimentary Insurance
- How Do You Choose the Right Card?
#1. Helps Build & Improve Your Credit Score
Banks check your credit score (CIBIL score) every time you apply for a loan, a credit card, or any other kind of financial assistance. This credit score demonstrates the creditworthiness of the applicant, helping banks evaluate whether the applicant is capable of repaying the debt or not.
In case you have a low credit score or no credit history to speak for, banks will reject your loan application.
So, how do you establish a strong financial footprint that will make things easy for you?
One way is to apply for secured credit cards like ICICI Instant Platinum card assuming that you neither have a credit card or any sort of credit history to showcase.
Banks readily approve the application of secured credit cards because these cards are issued against a fixed deposit of yours held with the bank.
Alternatively, if you already own one, all you have to do is to use it rightly like paying your bill on time, clearing at least the minimum amount due, and not crossing your credit limit.
You may check out my post a step by step guide to check free CIBIL score
#2. Saves Money for Bloggers & Online Entrepreneurs
If you are a blogger or an owner of online business and you don’t have a credit card, you will find it difficult to buy tools, software, online courses, hosting, themes, and other such useful things that could help you in building your business.
More importantly, you will loose one big advantage that having a credit card provides – free trials of these online tools and software.
Imaging buying an online tool for $200 only to realize that it was a garbage and complete waste of money. Rather, most of these tools can be tried for free for a given trial period if you share your credit card details at the time of checkout. Although, you will only be charged at the end of the trial period.
So, you can try the tool during the trial period and if you aren’t happy with it, you can cancel your subscription and you won’t be billed for it.
Given the number of tools, themes, and hosting related things you will be needing for your blog or business, having a credit card can save you a lot of money.
#3. Earn Interest During Interest-Free Period
“Shop Today & Pay Tomorrow” perfectly suits credit cards. And one of the biggest perks that are a result of this flexibility is that you can earn interest on the money that is sitting in your bank account.
Confused? Let me explain.
When you pay in cash or through debit cards, money instantly goes out from your pocket or bank account to the merchant.
But, this is not the case with credit cards.
Banks offer a grace period of up to 50 days on your credit card spends. If you repay credit bills within this grace period, you don’t have to pay any interest to the bank. More importantly, you are using bank’s money for free of cost for those 50 days and meanwhile, your money in your bank account fetches interest income for you.
This is called the power of leverage.
For example, you make a purchase of INR 50,000 with your debit card. Your money immediately gets deducted from your savings account. But with credit card purchase, the money would be in your savings account up to for 50 days and in that meantime, you would earn interest on that amount.
The interest amount would be around ~ INR 275 (50,000* 4%* 50/ 365) per month, which is Rs 3300 per year. The more your credit card spends, the higher would be your savings.
You could use that interest accrued every year to pay off your full or part premium for your health insurance, car insurance, or even a term life insurance.
#4. You Get Exclusive Special Offers & Discounts With Credit Cards
Online shopping in India is synonymous with discounts and offers. But, guess what, credit card users are the ones who make the most of it.
Whenever I visit any online shopping websites, I find exclusive offers and discounts specially for credit card users. More often than not, you end up saving at least 10% to 20%, if not more, just by making payment through a credit card.
I am an avid shopper of books and clothes online and every year I end up saving no less than INR 2000 to 3000 because of my credit card.
Besides, credit card savings are not limited only to online shopping but can be extended to other avenues like travel and movie booking sites like MakeMyTrip, Yatra, BookMyShow and many more.
For instance- Even if you watch movies only once a month, offers like below can save you up to Rs 2400 yearly (in some cases even more).
#5. Saving On EMI Transactions
Having a credit card can tremendously benefit you when it comes to EMI transactions. Let me explain how.
Firstly, in most of the cases, it is only the credit cardholders that get the option to make their payments via EMI’s. Say in 6 or 12 month installments. So, you don’t have to borrow the lumpsum amount at exorbitant interests from outside to make your payment. Besides, during that EMI time period, the money stays in your bank account earning you at least a savings interest rate of 3.5 to 4%.
If you are thinking what about the interest charges that credit cards levy on your EMIs which could dent your savings. Well, often, credit cards tie-up with shopping and other online platforms like Flipkart, Amazon, and many more to give its customers some kind of benefits that will help them to save more money.
One such benefit that I recently came across, was an offer on Amazon, wherein there were zero interest rate charges on EMIs through multiple banks credit cards like HDFC. That’s pretty good savings every month. Have a look below.
Lastly, if not a complete waiver of interest charges on EMI’s, many times credit cardholders get lesser interest charges on their EMI transactions.
#6. Helps Avoid Borrowing at High Interest Rates When Out of Money
Most of us, especially the salaried class runs out of money during the middle and later part of the month. Meeting our financial obligations in such a situation can become tricky.
If you don’t have a credit card, you end up borrowing from friends or moneylenders at high interest rates. High interest rates often could lead you to a lot of debt.
Worst, you could even end up liquidating your fixed deposit, losing out on savings and perhaps even paying a penalty.
More loss of your savings.
This is where a credit card can come in really handy as you can use your card to pay your bills and meet your financial obligations but can pay back later once your salary credits into your account.
Personally, having a credit card has helped me to save a lot of money which otherwise would have ended up in money lenders pockets.
But, do remember to see that you pay your credit card bills within the 50 day grace period so that you don’t nullify the savings you made.
#7. Welcome Gift (SignUp Bonus)
“The very first reward is always the most tempting one” is best used by banks for their credit card customers.
Banks offer huge welcome gifts on their premium credit cards to attract customers towards them.
Depending upon the bank that issues the credit card, you could get welcome rewards immediately after the approval and payment of the annual fee. For example, American Express bank issues gift vouchers worth INR 4000 immediately paying the annual fee.
But in some cases, you have to fulfill certain conditions to get the signup mega reward. For example, with Yes Bank Preferred credit card, you need to make the first transaction within 90 days of card issuance to get the welcome reward of 15000 reward points.
In either case, the welcome gift vouchers or the rewards points can be redeemed to purchase something of your choice, saving you a lot of money as you don’t have to pay from your pocket.
#8. Get Reward Points & Cashback Benefits
Credit cards reward you for using them either in terms of reward points, say 10 reward points for every INR 100 spent, or in terms of cashback.
You can save up to 5% of your money through reward points & cashback which could easily be at least Rs 3000 in one year. If your spendings are much higher, your rewards points & cashback also increase proportionately, resulting in more savings in a year.
After accumulating reward points over 3 years, recently I did free shopping worth INR 10,500 at shoppers stop. That’s INR 10,500 saved from my pocket.
Expert Advice- This is a direct saving on every penny spent by you. So, while comparing the credit card always give more priority to reward points & cashback as compared to welcome gifts. That’s because you would get a welcome gift only for the first year (rarely on renewal) whereas you would earn reward points till the last penny spent.
#9. Get Special Benefit With Co-Branded Credit Cards
Co-branded credit cards are sponsored by third-party like airlines, online shopping websites, or travel booking websites. These credit cards offer great deals on their respective platforms that could save you a ton of money.
The most famous co-branded cards include SBI Air India Credit card, American Express MakeMyTrip Card, SBI Yatra Card, Snapdeal HDFC credit card, and Jet Airways co-branded credit cards.
Below is an offer for SBI Yatra credit cardholder on travel booking platform Yatra.com
As you can see in the screenshot, you can save nearly Rs 10,000 on your travel bookings through a co-branded credit card.
Sure, the savings resulting from a co-branded credit may not suit everyone. But, if you are one of those guys who travels a lot and has a penchant for a specific airline, co-branded cards can save a ton of money every year as I showed above.
#10. You get Bonus Saving
Credit cards offer bonus reward points on achieving a threshold limit in a time period of one year. This is an additional saving over the welcome gift and regular reward points.
Just have a look at the bonus offer by SBI Simply Click Card
Mostly reward points are given as a bonus gift. You can redeem these reward points against gift cards or plan a foreign trip.
Almost every credit card offers bonus reward points on achieving a threshold limit. If we consider the average saving through bonus reward points, it lies in between 1% and 2%.
On annual spend of Rs 2 lakh, you can easily save around Rs 2000.
#11. Protects You from Financial Loss
What happens if you lose your wallet full of money? Most probably, you would not see your money again except the case where I find your wallet 😉
What if you carried a credit card instead of cash in your wallet and have lost the card?
Once you inform the bank about your card loss, you will not be liable for any misuse. Meaning – you don’t have to bear any financial loss.
Imagine this scenario – you lost Rs 10,000 cash v/s you lost your credit card. In the former case, you lose real money and in the latter case, you can quickly do damage control by informing the bank, which will, in turn, block your card and protect you from unauthorized financial liability.
Isn’t that indirect savings of your hard-earned money?
Besides, many credit cards provide lost card liability cover up to INR 1 lakh.
What more do you need?
#12. You Get Complimentary Insurance
Complimentary insurance is provided by most travel credit cards that can save you a lot of money during unexpected mishaps or emergencies.
Travel credit cards provide life insurance for air accidental cover, medical insurance while traveling, and baggage insurance.
This is a complimentary benefit by some specific cards and you don’t need to pay any extra fee.
Look at the insurance coverage provided by the Yes Bank on the Yes Bank Preferred card.
While one doesn’t wish you to have any medical emergency or baggage loss, surely having complimentary insurance helps in saving a lot of money which otherwise can burn a big hole in one’s pocket.
Let’s Calculate Total yearly Savings
In this calculation, I am only considering the estimated savings from interest earned during special offers from credit cards, reward points, cash backs, and bonus saving.
The figures are 3300+2400+3000+2000 = Rs 10,700
In this, I didn’t even consider the benefits such as welcome gifts, travel benefits, and other complimentary offers. These benefits are available on some selected premium credit cards. If you have a premium credit card, your saving amount could be much higher.
(The figures are estimates and could vary on the basis of the type of credit card and the usage)
How Do You Choose the Right Card?
To save hundreds or even thousands of rupees every year, you just need to find out the one card that works best for you. I know that there is too much confusion about where to find and how to choose.
Let me make it simpler for you.
Firstly think where do you spend the most?
For example – travel, online shopping, departmental stores, malls, fuel or dining.
Once you have decided, your half work is done. Now, you just have to compare the credit cards only in this specific category (where you spend the most).
Next step, calculate the range of annual spend that you would make through the credit card, say 2 to 3 lakhs.
Then, find out the credit cards that provide the best offers( in your annual spend range) like annual fee waiver, bonus reward points, and gift vouchers.
Now, you should be left with 2 to 3 credit card choices.
Proceed to calculate the real benefit ( expected benefit – annual fee) that you would get from each of those credit cards. Go with the card that offers you the highest benefit.
You can take the help of my post the best credit card in India to find the best credit card for yourself.