Credit cards have become a necessity nowadays. It offers several benefits, allowing you to conveniently pay your bills later, without affecting your savings. Credit cards can help you access debt in case you do not have enough savings at the moment you need to pull yourself out of an emergency. However, you must ensure timely repayments, to eliminate penalties.
Since funds from credit cards carry no restrictions, you can use them to deal with any emergencies. The following covers some of the instances where a credit card can help you.
How Can Credit Cards Help You in Emergencies?
Here is a list of situations where a credit card can come in handy:
- Medical Emergencies
Medical emergencies are unforeseen and due to the high medical expenses, one may likely need funds at the time of a medical emergency. As you cannot compromise your or your loved one’s health in a time of need, having a credit card is recommended.
With just the swipe of your credit card, you can borrow enough credit to finance the capital needed for the required treatment. This can include paying hospital charges, nursing fees, medicine, diagnostic charges, etc.
However, medical bills are quite expensive and may exceed the 30% credit utilisation limit. This may affect your credit score for a while, but it is worth considering the well-being of your loved ones.
- Loans on Credit Cards
Personal loans can help you effectively deal with events like sudden holiday plans, organising social events like marriage, etc. Most of the credit issuers in India offer unsecured loans on credit cards with relatively low processing fees based on one’s credit card usage/behaviour. Furthermore, it enables borrowers to repay the debt every month through EMIs which are billed to the credit card.
However, before availing a personal loan on your credit card, you must compare the liable charges and decide on a tenure that best suits your finances. For example, longer repayment tenure ensures lower EMIs but higher interest, whereas shorter tenure attracts higher EMIs with lower interest. However, the overall interest charged on longer credit repayment tenure is higher than on shorter repayment tenure.
- Cash Crunch
If you are running out of cash and urgently need to pay a merchant or shopkeeper who does not accept online payment, you can use your credit card to withdraw cash. However, it is not advisable to use your credit card for cash withdrawals as it will result in the charge of a percentage of the transaction amount as a cash advance fee.
However, emergencies may put people in tough situations where paying such fees may be necessary. Therefore, having a credit card is always advisable.
- Foreign Currency Exchange
Most credit issuers in India allow you to withdraw foreign currencies through ATMs abroad. This can help you avail cash in case you do not have enough cash or other means to carry out transactions. You can take part in international transactions via most credit cards, by enabling the option.
However, these services are not free and you will have to pay a around 3.5% foreign currency transaction fee. As per Indian regulations, every credit issuer needs to disclose their foreign transaction charges to borrowers before allotting them a credit card. One should learn about all the applicable fees before availing such facilities.
Advantages of Using Credit Cards
As long as you can be confident about your repayment capacity, using credit cards for emergencies will only help you. There are several other benefits and rewards you can claim by using credit cards. The following is a list of ways you can use credit cards for your benefit:
- Pay for Large Transactions Through EMIs
Big purchases like buying a vehicle, house, or medical expenses may take a toll on your savings and deposits. You can use your credit card to borrow funds to pay for such expenses. Breaking down your payments into Equated Monthly Instalments (EMIs), can make it easier to repay while enjoying the benefits of No Cost EMIs.
Some issuers allow you to convert high-interest credit card dues into personal loans. The rate of interest on these loans is much lower than credit card interest rates.
- You Can Earn Rewards and Benefits
Every purchase you make via a credit card can earn you cashback, coupons, discounts, and reward points. One can also avail air miles feature to claim discounted or free flight tickets. Moreover, using your credit card wisely in day-to-day expenses can help elevate your reputation among creditors, eventually increasing your credit score.
Disadvantages of Using Credit Cards
There are no cons to using credit cards if utilised strategically. However, any mismanagement or untimely repayments will affect you in the following ways:
- Can Put You in a Debt Trap
Credit cards can be enticing at times. However, you must remember that overspending via credit card can result in more interest than you can pay, putting you in a debt trap. It can also send your credit scores crashing down, preventing you from accessing credit for a long time.
You can minimise overspending by judiciously maintaining an appropriate credit utilisation ratio. Also, make sure to pay your credit card bills before the due date and avoid paying only the minimum amount.
- Liable Charges and Interest Rates
Credit card issuers levy high-interest rates on dues after a grace period. No interest is levied if you pay your credit card bills on time. Furthermore, you will have to pay annual fees on credit cards, which may exceed the cashback or discount amount. Other fees applicable on credit cards include overdue penalty charges or late payment fees and ATM withdrawal fees.
Therefore, you must carefully analyse the credit card policy before availing credit facilities. Also, make sure to avoid making cash withdrawals using a credit card and pay your dues on time.
Credit cards can be a perfect option to avail emergency debt. Since they are so easy to use, it’s very easy to spend more than you can afford to repay. Therefore, you must have a clear understanding of your finances and check if you can afford the EMIs.
Frequently Asked Questions
- Do credit card expenses attract Income Tax scrutiny?
One may attract income tax scrutiny in two major scenarios. If credit cards due worth ₹1 lakh or more is paid via cash and if anyone pays ₹10 lakh or more to settle credit card dues.
- Can I modify my credit card billing cycle?
Changing or modifying your credit card billing cycle is a complex task. You will need to contact the respective creditor and request a different billing cycle. Even so, it is likely that the creditor will offer you some specified dates which you can choose from.
- What if I am not able to repay the borrowed credit card debt?
In case a borrower is unable to pay the borrowed debt in due time, the issuing bank will send notices via SMS or letter for 6 months, after which the borrower will be considered a defaulter. Thereafter, the creditor may deactivate the credit card and hold legal charges against the borrower.