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In today's digital age, the word "credit card" makes many people break out in a cold sweat.  Some see it as a way to empty their pockets, while others consider it a debt trap. But have you ever wondered why even the world's richest and smartest people use credit cards instead of cash?

The truth is, a credit card is a very powerful financial tool. If you understand how to use it correctly, it can get you free flight tickets, significant cashback, and amazing discounts. The credit card itself isn't bad; it's the incomplete information surrounding it that's dangerous. So let's debunk six of the biggest misconceptions today.

1. Myth 1: Credit cards always lead to debt

This is the biggest fear that has been instilled in people's minds.
A credit card only puts you in debt if you don't repay the bank's money on time.
Every card gives you a 45 to 50-day 'interest-free period'.
If you spend ₹10,000 and repay it before the due date, you will pay 0% interest.
This means you used the bank's money for 50 days for free.
The debt problem arises when you borrow money and then forget about it.

2. Myth 2: Paying the Minimum Due is enough

The Minimum Due is a trap that people often fall into.
The bank says that if you pay only 5% of the total bill, they won't charge a penalty.
In reality, by paying the minimum due, you only avoid the 'late payment fee'.
However, the bank starts charging a hefty interest of 36% to 48% annually on the remaining 95% amount.
The downside is that when the bill arrives next month, you'll see that your outstanding balance has increased instead of decreased.
So always make it a habit to pay the 'total amount'.

3. Myth 3: Closing an old card will improve your credit score!

Many people cut up their old credit cards with scissors or cancel them as soon as they get a new one.
In reality, the older your 'credit history' is, the stronger your CIBIL score will be.
Closing an old card shortens your credit history, making the bank think you are a new customer.
If there is no annual fee on your old card, keep it active.
Make a small purchase or recharge with it once a year to keep it active.

4. Fourth Myth: Fear of Hidden Charges
People often say that banks secretly deduct money.
The truth is that the charges are not 'hidden'; we simply don't read the rules and terms and conditions.
There are mainly three charges: annual fees, late fees, and interest on cash withdrawals.
So, if you don't withdraw cash from ATMs and pay your bills on time, you won't have to pay a single extra rupee.
Nowadays, there are plenty of 'lifetime free' cards available that don't have any annual fees.

5. Fifth Myth: Increasing the Credit Limit means inviting 'expenses.'
When the bank says they are increasing the limit from ₹1 lakh to ₹3 lakhs, people refuse out of fear.
But having a higher limit is a boon for your credit score.
This is actually called the 'Credit Utilization Ratio' (CUR).
So, if your limit is ₹1 lakh and you spend ₹30,000, you have used 30% of your limit.
If the limit is ₹3 lakhs and you spend ₹30,000, you have used only 10% of your limit.
In the bank's eyes, the customer who uses only 10% of their limit is more trustworthy.
Just remember that increasing the limit doesn't mean increasing your spending.

6. Sixth Myth: Having more than one card is troublesome
If you are disciplined, having 2-3 cards is very beneficial.
One card might offer discounts on groceries, another on petrol, and a third on online shopping. By using the reward points and offers from different cards, you can save thousands of rupees every year.
Additionally, you'll have more funds available in case of emergencies.

Be the master, not the slave.
Clearly, if you have the discipline to pay your credit card bills on time, there's no better friend than a credit card. It offers you free insurance, lounge access, and numerous rewards. So, stop being afraid, read the rules, and take advantage of it smartly. (Disclaimer: This information is for general purposes only. The benefits of a credit card are realized only when full payment is made on time. Terms and conditions may vary depending on the bank; please read the rules before making a decision.)

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.