With rapid technological advancements, the world is going cashless. In Nepal, too, there has been a surge in digital transactions in recent times. A few years ago, the use of digital platforms for financial transactions was quite limited. But now we rely on mobile banking. So it is safe to say that Nepal is gradually shifting to a cashless economy.

A cashless payment method doesn’t involve physical money. Instead, it utilises digital platforms like credit cards, debit cards, or internet/mobile banking for monetary transactions. The use of physical cash is minimal in a cashless economy. In this article, let’s talk about credit cards, one of the most-heard forms of digital transactions.

Credit cards fall under plastic money, just like debit cards. Plastic money is a term used to describe the hard plastic cards used for transactions. They come with 16-digit card numbers, expiration dates, magnetic strips, and EMV chips and allow one to borrow money from the card issuer up to a specific limit to purchase items or withdraw cash. Cardholders, of course, agree to pay the money back with interest, according to the institution’s terms. If users fail to pay all of the credit on time, the institution charges them additional interest.

Himalayan Bank Ltd introduced credit cards for the first time in the domestic market. Today, many banks issue credit cards as long as one meets the prescribed eligibility criteria. To apply for a credit card, one needs to furnish a letter from his/her employer specifying the monthly salary. Self-employed persons need to produce a tax clearance certificate issued by the concerned tax office.

Typically, banks provide credit card limits of up to twice the monthly income of the cardholder. A person can withdraw up to 10% of the credit card limit in cash. For instance, if the credit card limit is Rs 100,000, the person can withdraw up to Rs 10,000 in a month through ATMs. All the banks in Nepal offer the same payment cycle of 15 to 45 days. Credit cards are billed after use for 30 days, i.e., you will get the bill on the 30th of the month for all the expenses you made through the 1st -30th of the month. After getting the bill, cardholders get a 15-day grace period to pay the billed amount i.e., the 15th of next month. If you pay the total amount within the 15th of next month, no interest fee is levied. However, if one fails to repay the amount, banks charge interest on the outstanding amount.

Although credit cards often get a bad reputation for being a debt trap, they can be a great financial tool if used responsibly. Let’s dive into some of the pros and cons of using a credit card.

Pros of Credit Cards:
1.    It helps in going cashless. Carrying cash all the time is not convenient. And withdrawing money anywhere and everywhere is not feasible either.

2.    It helps you build a strong credit history. Using a line of credit by making purchases and paying them off on time will help you get a good credit rating from credit rating agencies, which will make lenders more likely to lend to you and offer you a reasonable interest rate.  

3.    There are multiple rewards associated with credit cards. Banks often provide discounts, cash backs, etc., that are exclusively available on some credit cards.

4.    Credit cards have theft protection. If your card gets stolen, the bank guarantees the liability. On the other hand, it is almost impossible to get the money back if cash is lost or stolen.

5.    Credit cards help us track our expenses. It helps us in budgeting and making practical plans.

6.    They are a whole lot safer to use. All you have to do is repay your debts on time and maintain a good credit score. You do not have to worry about excess payments and unreasonable interests.

Cons of Credit Cards:
1.    You might end up overspending. Credit cards will get you into serious debt if you treat them as an infinite pool of money. So it’s best to keep tabs on your purchases to make sure you don’t spend beyond your means. You wouldn’t like being in debt by overspending on a credit card.

2.    Credit Card Interest and fees might cost you a lot. The interest charged on credit cards is a little high, and it is never uniform. There is no guarantee that the rates will be constant. It can rise unexpectedly, causing a massive cut in our budget and expenses. The bank charges 2 to 2.5% per month, i.e., 24% to 30% per annum for a due amount not paid on time. So, to avoid the highest interest charge, it is best to pay the entire unpaid amount before the due date.

3.    Not everyone can apply for a credit card. If you have a low income or a weak credit history, you cannot get a credit card. In some cases, even if you meet all the requirements, you are not eligible for a credit card because it all depends on the bank.

4.    Maintaining a credit card is a little tricky. You not only need to have a good credit score so that the bank allows you to borrow, but you also need to pay the annual fees to carry on with your service with rewards. Sometimes, the yearly price is high for no reason.

5.    The fine prints can be confusing. The details and intricacies of credit card documents are not appropriately told. The statements are written in such technical words and small prints that it will be challenging to go through them.

Credit cards can be a credit-building tool if used responsibly. Paying bills on time in full can help you avoid scary interest charges and build a strong credit score. Almost everyone needs to borrow money to achieve their financial goals, and credit cards are excellent when used responsibly. However, when used mindlessly, credit cards can erode your financial health in no time. So, it is essential to weigh all the advantages and disadvantages before incorporating credit cards into your financial plan.