How credit cards can improve the personal finances of new entrants

Used wisely, credit cards offer an excellent opportunity to manage finances using the interest-free credit period. However, if such cards are used extensively to purchase things well above income limits, causing credit card bills to be delayed, users may fall into a debt trap.

“Credit cards were once considered a luxury, but now they are a necessity, because credit cards are what help you address your emergencies, necessities and lifestyle improvements, especially for young people just starting their careers. career and earn a modest income. said Anil Pinapala, CEO and founder of Vivifi India Finance.

“Most of us grew up afraid of credit cards because they are often seen as a means of racking up debt. But not all debt is bad, especially if it addresses your needs and helps you build your credit profile. In fact, the responsible use of credit is a fundamental financial learning for an efficient management of your personal finances. It instills the habit of balancing income and expenses well, allowing access to more credit as you settle into your career,” he added.

Responsible use of credit cards also helps users improve their credit scores.

“Also, a strong credit score is what will get you the best rates and services when applying for a bank loan. Also, don’t forget that discounts, cash back, coupons and other offers can be availed through credit cards, from time to time,” Pinapala said.

However, for new entrants, in the absence of existing credit scores, it can be difficult to obtain a credit card with good features. To fill the gap, fintech players such as providers of BNPL (buy now pay later), personal line of credit, etc.

“Unfortunately, new entrants in India are neglected or neglected by the traditional banking system as they have no credit history. Tin file consumers don’t have access to credit cards and this is exactly where players like FlexPay stepped in to provide credit to unbanked consumers. Flexpay’s personal line of credit especially benefits those new to credit or young people earning money, as it ensures they have access to credit when they need it,” Pinapala said.

Speaking about the importance of credit cards, Nitin Mathur, CEO of Tavaga Advisory Services, said: “Millennials these days are eagerly awaiting their own credit cards so they can spend when and how they want. As soon as one starts working, one becomes eligible to apply for a credit card. However, a credit card is the root cause of many financial problems and often makes new entrants prone to racking up more debt than they can afford to pay off very early in life. Therefore, credit cards should always be used with caution to manage finances and save money.”

Mathur lists the ways credit cards help improve personal finances:

Improve credit score

Using a credit card is similar to taking out a loan, in that the credit bureaus consider all credit card transactions when calculating your credit score. Although interest is charged on loans, credit cards do not charge interest as long as the full payment is paid by the due date. Paying all credit card payments on time improves your credit score, which further helps build credibility for future loans.

Benefits of the card to save money

Many products provide benefits tied to credit card payments that you might not otherwise get. These include discounts, rebates, coupons and other special offers. However, one should be very careful when availing these benefits as they can be a trap to take on more credit card debt than you can afford.

EMI credit card: a smart way to pay

Credit card issuers form partnerships with manufacturers, service providers, and merchants to offer EMI in their products or services at little or no cost. Some trade associations even provide credit card holders with additional discounts and rebates when they use the free EMI option on certain services and items. While new hires can take advantage of this option to spread payments, it shouldn’t lead to overspending on non-essential items.

“Although credit cards help you manage your cash and take advantage of attractive offers, after all, it is a debt that must be paid. Any late payments will attract a huge penalty and will affect your credit score as well. Therefore, it is advisable to spend from your savings and use the credit card only if it is absolutely necessary and also within your means,” said Mathur.

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