Year 2013 is drawing to a close and you’ve probably started jotting down your list of dos and don’ts for the New Year. A very common resolution is to spend less and save more. So, if you are among those wanting to be more prudent in your spending in the coming year, here’s a few things you can keep in mind about using credit and debit cards.

Plastic money seems to have overtaken cash of late. Many large retail chains have reported that purchases with credit and debit cards have overtaken cash buys for the first time in India. In a market such as India, where cash has always been the king, this is a significant development. So, are consumers finally starting to love plastic?

There are about 330 million debit card and 20 million credit card users in India today. A vast majority of the debit card users, however, still use these cards only at ATMs and not at merchant stores. While 30-60 per cent of debit card customers actively use them at merchant outlets in some developed markets, in India that proportion has remained below 10 per cent.

Cashless advantage

Using plastic money has many benefits. Say, you’re thinking of some shopping over the weekend. A typical Indian customer would go to the ATM on Friday evening, withdraw the money he needs, plus some extra as buffer, and take the whole cash to the mall.

However, if you use plastic money, you would have to withdraw much less cash and spend directly at the stores using your cards. Now, how is that beneficial?

First, it is much safe as you don’t have to walk around with a lot of cash.

Second, you earn reward points from the bank for the purchases. You may think reward points aren’t very attractive, or take a long time to accumulate, but remember cash spends get you nothing at all.

Third, every month your bank sends you special deals on specific merchants if you spend using cards.

It might be a 5 per cent cashback or a buy one get one at half the rate. If you spend in cash, none of the options are available.

Finally, if you withdraw less cash, the money in your account earns interest for a few more days.

In the case of a credit card, there are two other advantages on top of all this. First, you can pay back the money not right away but 25 days later. So, the money in your account earns interest for the entire period.

Second, if you want to repay slowly and not all in one go, you can do that with the credit card, either in the form of staggered payments, or by converting your purchase into an EMI.

The pitfalls

All these advantages, however, are not without their downsides.

First, is the safety and security of your finances. If you’re carrying just cash, you will only lose the money if your wallet is stolen. If you lose the cards, you’ll get drawn to immense tension and hassle to block them and get new ones.

The other worry is over-indulgence: if you get used to spending on cards, will you end up living beyond your means?

These are valid concerns but smart users of credit and debit cards know how to control these risks and enjoy all the benefits of plastic money.

Safety matters

Know to handle your cards safely. Do not share details of the cards with anyone. Never share your PIN (personal identification number), CVV number (on the back of the card) or other details.

With the recent changes by the Reserve Bank of India, every debit card transaction at merchant stores needs to be accompanied by your ATM PIN. So, even if someone gets hold of your card, one cannot use it unless one knows your PIN.

If you want even more safety, ask your bank for a “Chip and PIN” card. Cards with a chip on them are extremely difficult to duplicate, and are, thus, much more secure.

These cards are increasingly getting popular in the credit card space, but your bank will give you a chip and PIN debit card as well, if you want one.

Similarly, if you are buying something on the Internet using your card, don’t share the password with anyone. If you get emails claiming to be from your bank asking for your password details, never reveal it. No bank asks for password via email.

In case you lose your credit or debit card, call your bank immediately. Almost every bank offers “zero lost card liability”, meaning you don’t lose any money on transactions undertaken by the thief. You will be fully protected.

Control tips

Worried about overspending on your credit card? Set your own limits on the card, if your bank allows that. Always try to repay on time, and in full. If you make a large purchase and are not keen on repaying in full, convert it to an EMI quickly, as every bank offers much lower interest rates once you convert to EMI.

Cards are powerful payment tools that can bring you tremendous value and convenience. If you are smart about using them, you can enjoy the benefits without suffering the risks.

So, next time you go out shopping, you may consider giving up the queue outside ATM and use your cards.

The author is president, consumer lending and payments, Axis Bank