There is one thing which is taught in the very first lecture of Economics and that is ceteris paribus, which means that if you wish to compare 2 things, then you must vary one variable and rest all the variables associated with them equal.
Assumption
So In order to fulfil that condition, I am assuming that there are no offers on any the Debit Card or the Credit Card and there joining fees is also same or zero.
Fact
If you would have looked at your bank statement, there might an entry at the end of every quarter saying Credit Interest Capitalised. Majority of us don’t care about that as such, but the very interesting fact about that is that, that the interest is calculated on a daily basis. Yes, it is calculated on a daily basis. The interest rate is around 3–4% depending on the type of account.
Benefit
Now, let us suppose that on the first day of the month, you are credited with 1Lakh rupees as your salary. You obviously have expenses like Paying Rent, Paying Electricity Bills, Internet Bills etc. So for now let suppose that the total comes out to be 50k.
Scenario 1 (Paying the amount using Debit Card)
In this particular case, as soon as you pay 50k, you will be left with 50k in your bank account and for the next 30 days, the interest will be calculated on 50k.
Scenario 2(Paying the amount using Credit Card)
In this particular case, as soon as you pay 50k, you will still be left with 1Lakh rupees in your bank account. And for the next 30 days, the interest will be calculated on 1Lakh rupees. But wait…., things get interesting here, now on the 30th, your credit card bill will get generated, and you will get another 15 days to pay the bill. If you pay the bill on the very last day of due date, you will get extra 15 days of interest. ;) (You can put your credit card on auto-debit).
Conclusion
So basically, using a credit card theoretically is a win situation. I won’t call it win-win because people sometimes don’t use it smartly or appropriately. If it is used as per what is meant to be done with it, then it is for sure a win-win situation.
Will be writing about CRED soon…
