Credit cards offer 3 benefits in addition to cashless credit if used responsibly

Megha Nath, fresh into her first job after completing her studies, is unsure about getting a credit card. She has a bank account, a debit card, and only an education loan to repay. The youngster prefers keeping her finances clean and disciplined. While owning a credit card feels aspirational, she worries that it could lead to early debt and strain her finances. Does she really need one?

If Megha Nath wants to keep her finances simple, a debit card may suffice. However, taking a long-term view, a credit card could be a useful tool. Essentially an unsecured personal loan, a credit card, if used wisely, can offer valuable benefits without compromising financial discipline.

First, a credit card helps build credit history. Timely repayments can help improve Nath’s credit score, aiding future loan approvals for a home or car. Second, credit cards offer protection against theft and misuse. If the card is lost, she can block it and banks typically cover fraudulent charges after verification. With debit cards, the money is debited instantly and recovery may be hard. Third, credit card usage earns reward points that can be redeemed for fuel, flights, or gadgets. Debit cards don’t usually offer such benefits.

A credit card is a form of loan and, if misused, can lead to costly debt. However, when used responsibly, it offers several benefits beyond just enabling cashless transactions at merchant outlets.

Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.