The credit card market in India has grown rapidly in recent years, with banks continuing to offer attractive offers to a growing base of young customers. The country had over 50 million credit card holders in 2019 and that number is likely to have increased this year.
Considering the risk associated with owning a credit card, a majority of individuals refrain from opting for more than one card because they wish to limit their expenditure to the strict minimum. This strategy may work for a novice credit card user, according to financial experts.
However, for active users, the prospect of having more than one credit card may not be bad after all. Here are some reasons why active users should opt for more than one credit card:
Make the most of the interest-free period
All credit cards have an interest-free period after purchases. Almost all credit cards offer an interest-free window depending on your billing cycle. For example, if the billing cycle ends on the last day of the month, you get an interest-free period of almost a month. Note that the interest-free period varies depending on your bank.
If your billing cycle ends on the last day of the month, you have almost a month to pay your dues without having to pay interest. It may be noted that purchases made towards the end of a billing cycle provide a shorter interest-free period. And this is where having two cards can be beneficial.
If you have another credit card that has a different billing cycle, you can choose your card that offers a longer interest-free period to complete the purchase. This will help you take full advantage of the interest-free period. Plus, having two cards will also ensure you don’t accrue higher interest.
If you have two or more credit cards, make sure they have different billing cycles to make the most of the interest-free period.
Flexibility and low use of debt
When a user has more than one credit card, it helps distribute the debt between them efficiently. Purchases made on a single card, in the event of a postponement of the bill, attract a higher interest rate.
The higher interest rate will also apply to new purchases made the following month. Ideally, you should stop using the credit card with the outstanding balance until the dues are paid and instead use the other cards available to you. This will help you avoid high rolling interest charges.
Financial experts say racking up the entire burden of debt on a single credit card — especially if bills aren’t paid during the interest-free period — can lead to years of repayments due to increased debt. amount of interest.
A person using only one credit card activity will struggle to maintain low debt usage compared to another person who has two credit cards. This helps enormously to balance purchases and keep the combined interest rate low.
Maintain utilization rate and good credit score
This is probably the most important aspect of having more than one credit card. A utilization rate of health credits is crucial to maintain a good credit score, which contains important information about your credit history. Most financial experts advise credit card holders to keep card usage below 30% of total available credit.
Failure to meet this usage limit results in higher interest on payments if the individual is unable to settle the outstanding amount before the billing cycle. However, having more than one credit card also solves this problem. Splitting credit usage between two cards to keep usage below 30% is an ideal solution for people who actively use credit payments.
Offers & advantages
The sole purpose of having more than one credit card is not just to split the debt burden to lower the interest rate. Credit cards always come with exclusive offers, as lenders have ties with retailers, brands, and service providers.
There are different credit cards that are tailor-made for different activities. If you have more than one, make sure they offer an exclusive benefit.
For example, some banks offer ideal cards for shopping online because they offer high discounts; others may offer travel discounts. Keep an eye out for these offers and accumulate rewards points to get the most out of your credit cards.
Don’t forget the risks!
Experts agree that having more than one credit card allows individuals to lower their interest payments if they use it wisely. But having multiple cards also increases the risk if not used in the right way.
If an individual spends equally high amounts on multiple cards, it could lead to a huge problem and would not only affect their finances but also their credit rating. A bad credit rating greatly reduces the chances of obtaining future loans.
Individuals should note that the idea of having more than one credit card should only be aimed at balancing credit usage and keeping interest payments low.