For use in emergencies when the economy is less
For young employees at the initial stage of their career, often when the remuneration is modest, it is difficult to have a good amount of savings or an emergency fund sufficient to meet all the requirements. This is where a credit card could come in handy. On the one hand, it will give you quick access to the money and on the other hand, it will give you the credit-free period of up to 45 days to plan the repayment. So, despite lesser savings, a credit card would give you the confidence to handle many of life’s eventualities.
Establish a credit history to easily access future credit
Loans have become an integral part of personal finance as many people now take out secured and/or unsecured loans at some point in their lives. However, the cost of the loan in terms of interest rate often depends on the applicant’s credit rating. “Credit score determines the rate at which you can access credit. For example, credit score is a factor in calculating the charge on the EBLR rate when the bank issues a home loan. credit, the better the interest rate you will qualify for on future loans,” says Adhil Shetty, CEO of BankBazaar.com.
Having a good credit rating gives you better bargaining power with which you can always demand the best rates and services. “In the future, a high credit score can help you get the best deal on other types of credit like personal loans and home loans. Several banks and NBFCs today offer a lower interest rate than borrowers with a great credit score Not only that if your score is high you get a wider choice of offers and in many cases the process can also be easier allowing you to save time and money,” says Sachin Vasudeva – Associate Director & Head of Credit Cards – Paisabazaar.com.
So, if you have a high credit rating, you not only get a loan easily, but also cheaply. Having a credit card early will help you in this regard. “Getting a credit card early in your working life will allow you to start your credit journey early and build a solid credit score over time through responsible card use,” says Vasudeva.
Benefit from discounts, cashbacks, offers and promotions on your purchases
Many products offer credit card payment rewards that you won’t otherwise get. “Credit cards are very versatile financial tools. Not only are they a very rewarding payment option, they also serve as a first line of credit. Over time, shopping has increasingly moved online, and the last two years have given it a bigger boost. So it’s no surprise that young people are looking to get their first credit card earlier,” Shetty says.
Thus, many cashback offers, discounts and other such offers can be used through credit cards with the same amount of money but changing the payment method. “Credit cards give you higher purchasing power and the ability to earn rewards. Spending on the cards comes with an interest-free period that can last up to over 45 days and gives you a chance to earn great rewards, unlike any other credit instrument,” says Vasudeva.
Access to many world-class privileges
Most credit cards offer a range of privileges such as free access to domestic and international airport lounges, free access to OTT platforms, 24/7 concierge services, access to courts golf courses from all over the world, etc. Many such privileges come with the card, and you can always choose the one that suits your lifestyle.
Gives you the learning curve needed to manage finances responsibly
Whenever you plan to spend your money, you need to weigh the pros and cons of using your credit card and understand the net benefit. Responsible use of credit is essential financial learning that helps you manage your personal finances effectively.
Transmit a conscious risk management
The most important factor that young adults need to learn is to be aware of the pitfalls of having a credit card. Unless you’re sure you’re managing these five risks well, a credit card may not be right for you.
Checking for any overspending urges: With a line of credit at your disposal, the first thing you need to learn is to control the tendency to overspend. “Since credit cards come with an interest-free period of up to 45+ days, where nothing immediately comes out of your bank account, there can be a tendency to get carried away and overspend. This can lead to increased credit card bills, resulting in little or no savings, or worse, the inability to pay them off in full on time, which is not only detrimental to your finances, but also to your credit score,” says Vasudeva.
Paying only the minimum contribution is very expensive: If you choose to pay minimum dues on each credit card statement, it will cost you dearly. “For the same reasons as discussed above, simply paying the minimum balance is a bad idea. Suppose the card has an annualized interest of 36% and a minimum balance of 500 rupees. Suppose you have spent 10 000 rupees on the card. If you only pay the minimum balance, you might need 17 years to pay off the debt, and the interest you pay off alone would be around 15,000 rupees,” says Shetty.
Understand the high cost of procrastination: Credit cards usually have a very high interest rate for revolving credit and significant penalties. “There are fees, interest and even penalties in case the bills are not paid on time. Interest of 2-4% per month is 24-48% per year. So if you turn your credit, it will become a very expensive proposition for you,” says Shetty.
Partial use of credit limit: Although the idea is to establish a good credit rating through your credit card, the percentage of use of your credit card limit plays a vital role. “As much as possible, limit the use of your credit card to 30-50% or the credit limit. So if your limit is 50,000 rupees, do not spend more than 15,000 rupees to 25,000 rupees per This will help you build your credit score,” says Shetty.
Will take longer to recover from any errors: If you make a mistake in handling a credit card, it will take a long time to recover. “Keep in mind that once your credit score has dropped significantly, it will take a long time to rebuild it and therefore your ability to borrow will be limited until you reach a high credit score,” says Vasudeva. If you can’t pay the dues all at once, you can split them into affordable EMIs at a lower interest rate.
Should you get a credit card at your first job
So, rather than age or career stage, awareness of credit card risks and benefits is what counts. “There is no ideal time to wait until you get your first card. However, it is essential that you understand the basics of how cards work and cultivate financial discipline so that you can use cards effectively without any financial incident,” Shetty said. .
If you feel comfortable being disciplined about repayment and managing your borrowing responsibly, a credit card could become a handy tool for managing your personal finances. “As long as you understand that you shouldn’t borrow more than you can comfortably repay and that you stick to paying your bills in full each month well before the due date, you’re ready for your first credit card.” , says Shetty.