Credit Cards Or Cash – Which Scores Higher?

We Indian have a unique fascination with cash and this is evidenced even in the advertisements of online shopping format — cash on delivery format. However, though cash is still the favoured format of carrying out transactions across the country, Indians(especially the new generation) are driving the shift towards the use of plastic currency i.e. credit cards. The following are some points where credit cards score over traditional money:

1. Enhanced Security:Whether you are in New York or New Delhi, carrying a wad of cash on your person is probably not the smartest move. Apart from the fact that it might be stolen, there is also the possibility that you might lose your wallet or bag in a taxi, metro or other public transport. On the other hand, a credit card specially one with a chip and PIN (Personal Identification Number) system is highly secure as it cannot be used by an unauthorized individual unless he/she has access to your PIN.
2. EMI Offers:If you use cash for big ticket purchases, you will usually have to pay it off at one go. Though this may be considered to be a good practice by many, the process of saving up cash before making a purchase is definitely time-consuming. Using a credit card, you can easily get the big ticket purchase converted to an EMI at a relatively low interest rate (around 12% to 13%) and then pay it off in small parts every month.
3. Credit Score Improvement:When you use cash to pay for anything, it has no impact on your credit score as your credit score is a record of how you have managed various debt instruments. Credit card is a debt instrument because every time you use it, you take a short time loan. If you use and pay off the credit card bills on time and in full you take the first steps towards building a robust credit profile and a good credit score, which will be an asset when you have to apply for loans or other credit cards in the future.
4. Rewards on expenditure:If you use a credit card to make any purchase, you earn rewards on your expenditures. These may be in the form of redeemable reward points, cash back credited to your account, store discounts, airport lounge access, waiver of surcharges such as those on fuel and others. Depending upon the card, you can exchange your reward points in lieu of various gifts, shopping vouchers, discounts at restaurants or on online shopping portals and more.
5. Increased Convenience:Imagine carrying a large amount of cash every time you have to make a big ticket purchase like a three-door refrigerator, air conditioner, PlayStation4 etc. If not anything else, using cash for such big-ticket is inconvenient to say the least. But with a card, this is managed quite easily with minimum hassles.

On the Flip Side

Like most other things in life, credit cards also come with a few factors that may be perceived as disadvantage by some individuals, while some others might just consider it to be room for improvement.

1. An additional bill to pay: Credit cards have well defined billing cycles that might be costly to miss as you get penalised by late charges as well as the interest incurred on your balance amount from the due date till the date of bill payment. However, the card issuers do send repeated reminders to the registered mobile number before the due date and all you need to do is act in a timely manner.
2. The Acceptance Issue: In India, credit card penetration is still extremely low especially in semi-urban and rural areas. In such cases, there is no real alternative to cash. But, this is changing quite fast all over India, soon even your corner “mom and pop” store might decide to start accepting credit cards.
3. The risk of Impulse Purchase: For many, this is the proverbial “sword of Damocles” – there is always a risk you will misuse the credit limit. You may easily end up buying stuff that you do not really need as a credit card gives you access to cash that you can always pay off later. Then the bills may pile up till they become almost unmanageable.

From the above points, you might have already gathered that the debate is far from over and even if credit cards were acceptable in every shop in India, they would definitely still continue accepting cash. However, as the acceptance and bouquet of benefits offered by plastic money extends to various strata of society, credit cards will definitely emerge as one of the most preferred ways to transact in spite of cash.