In the modern times that we live in, carrying around a wad of cash is a thing of the past. For everything we do, there is plastic money. There is hardly anyone you would find around you, who does not carry around multiple cards. There are numerous cards representing multiple bank accounts and multiple lenders that people have to carry around in the wallets. The irony of the situation is that even if your wallet is not fat with a wad of cash anymore, you find it bursting at the seams eventually because of the numerous cards you need to have on your person always!
A potential debt trap?
Some people however find carrying around too many cards cumbersome. Besides, they are wary of credit cards, because they believe that eventually credit leads to a debt trap. While their fear is not completely unfounded, as reckless credit usage through a card can indeed lead you to a situation where you find yourself unable to repay the entire outstanding amount. You thus end up paying only the minimum amount due each month and are in effect rolling over your credit and paying more interest as you go along!
Solution lies in a credit cum debit card
If you are extremely wary of a situation as the one described above, and yet are keen to maintain a good credit record, you can consider a credit cum debit card. These are essentially debit cards that are based on the concept of overdraft benefit. It works like this. Like any other debit card, you can use it to withdraw cash at an ATM or for shopping. However if the account has exhausted, you can use the same card up to a pre-determined limit over and above your account balance.
Advantages of a credit cum debit card
The biggest advantage of a credit cum debit card is that while it can function as a regular credit card, the interest you pay on it is significantly lower on such cards in the range of 14-18% as against regular cards where interest rates may be upwards of 25%. Further, unlike regular cards, you do not pay any extra amount on cash withdrawal on this card. However, there is one disadvantage of such cards as well.
Drawback of a credit cum debit card
If you happen to use the credit limit on this, there is no interest free period or grace period as compared to its regular counterparts, and you pay interest on the amount you have used from day one itself. In effect, you could say it works like an unsecured loan like a personal loan. However, if you make regular repayments on time, you can build your credit score through this card. Since it offers the credit facility, the usage of credit is used in your CIBIL score calculation.
Limited choice, stringent eligibility criteria
While this card seem like a good option for those wary of carrying around too many cards or falling into a debt trap with regular credit lines, only a handful of banks offer this product. Although there is no processing fee or initial charges on debit cum credit cards, they come with stringent eligibility criteria. Moreover it varies from bank to bank.
For instance, some banks set the credit limit at 2-3 times the take home salary of the individual, and offer such a card only against a salary account. Others may offer you this product only if you maintain fixed deposits in the bank. In such cases, the bank may set your credit limit at a proportion of your fixed deposit amount.
Weigh your options carefully
Thus, if contemplating a credit card after a lot of self-debate and want to opt for one just as a back up to ensure that your CIBIL score calculation is based on legitimate credit usage, this credit cum debit card may seem like an ideal choice to you.
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