Credit cards are a great tool to encash money, make purchases anywhere and increase credit score over time. Most of us, who has the privilege of owning a credit card know about the benefits and services it offers on our purchases. Provided we have good financial and spending habits, credit cards empower us to manage our expenditures and maintain a good cash flow. It comes in handy, when in need of some monetary compensation or to pay off any liability. If used wisely, credit cards help in increasing one’s credit score, and credit limit but if the debts are not paid on time then it quickly racks up to take a height of a mountain. You could be surmounted by a huge pile of debt, with no way out.
This plastic money not only needs a right user but also needs a right attitude and an agile mindset for its usage. If you’re thinking what’s the worst that could happen if you miss out on your payments? Then look no further than your neighbors, or family members. The debt of an average Indian who holds a credit card is increasing at an unnerving rate with no signs of showing a downturn anytime soon. Recent reports from RBI shows “ ₹42,000 crore being an outstanding debt on credit card at the end of may 2016 as against ₹27,000 crore during 2008 real estate market crash. And these numbers are just adding up.
However, the risk of increasing debt or hard-to-handle expenses comes to those with irresponsible financial habits. It’s imperative to use a credit card in a right way, but we know that there’s no mentor or user-manual provided while availing a card. And mistakes are inevitable if you’re a first time user or have little to no experience in using a credit card. To help you out in the process of improving your financial habits, we’ve garnered several points from our very own experiences and credit card experts. Read on to know some tips to effectively use your credit card.
Understanding The Credit Card
This may sound like a no-brainer, but this is the single most powerful and effective way to intricately manage your credit card. Just like you won’t purchase a smartphone without cracking head over its specifications, it’s also pivotal to fully understand your credit card before availing or using it. Read out all the all the offers or rewards that your card has to offer, and other things such as-
Annual Fees
How much cost are you incurring annually? Different credit cards have different annual fees. It’s a fee which is automatically charged on your credit card account once a year. Not all the credit cards have an annual fee, generally, cards offering benefits, reward points levies an annual fee. If you’re planning to use a card only for emergency purposes then consider a card with a low annual fee, and if you’re seeking extra rewards and benefits on your purchases then you’ll find the card with a little higher fee of great value.
Interest Rates
A percentage that you have to pay on your principal amount or purchases. Again, do your in-depth research and apply for the card with offering the lowest interest rate with more benefits.
Credit Limit
How much amount does your lender let you borrow? A credit limit on your card is determined through several factors like credit history, income level etcetera. If you know your credit limit then you can also keep your credit utilization ratio in check. Generally, a utilization percentage between 20-30% is considered good.
Related Article: Best Credit cards of 2018 by IndiaLends
Align Your Card With Your Lifestyle
Different cards are designed for different lifestyles, and hence offer benefits and reward programs accordingly. There are cards designed for travelers, shoppers, online shoppers, first-time users, and so on! The best credit card tip is to find a card that aligns with your lifestyle. If a considerable chunk of your spending is on groceries and household shopping then apply for a credit card that gives you offers and discounts on that. If you are someone who travels a lot then find a card that gives you cheaper flights tickets and hotel bookings. For someone who likes to enjoy premium benefits, you should find a card that gives you premium benefits, or 5-star resort stays.
There is no point in having a card that offers benefits that you will never use. You could have a travel card, but if you take a flight only once every year then your card is not helping you at all.
Using Balance Transfer
A balance transfer is a simple process of transferring balances from a high-interest card to a lower one. You can extend the repayment period of the card through such transfers. If you’re one such user, with troubled finances and are struggling to repay the loan amount back then balance transfer can be a lucrative medium for you. A balance transfer only takes place between cards from a different bank. While transferring the funds a processing fee of 1-2% is levied. There are several financial institutions providing lower interest rates on transferring a balance, remember to research articulately. There are several mistakes which might happen due to the excruciating pressure of paying debt, make sure to avoid such mistakes in balance transfers.
Managing Your Debt Responsibly
Debt Management is not hard if organized and done carefully. If you find yourself in a position where keeping track of your debt seems hard then you can follow some points below to tackle that situation-
— If you’re engaged in a battle to eliminate debt then consider using your credit card only when needed. It’s time to plan on your purchases and set your priorities.
— Try consolidating your debts. This can be done through balance transfers.
EMIs On Credit Card
Credit card companies offer facilities like paying credit card bills through EMIs. This is similar to a personal loan scheme where payments are made in EMIs. This facility comes handy when you’re facing troubles or defaulting on payments. There is absolutely no documentation or paperwork required for the same, that too with instant approvals. The interest rate offered here is less as compared to the interest rates on normal credit cards. Before indulging into the process, make sure to cross-examine the bank about processing fees, interest rates, prepayment charges and flexibility in time periods.
Maximize Your Benefits By Having Multiple Cards:
Every credit card comes with its own set of benefits. Therefore, owning multiple credit cards help you reap more benefits which, together, add up to form a big bag of savings. For example, you can use one credit card that gives rewards on groceries for your home purchases and one that gives travel rewards to buy airline tickets. This way you get to tap into different reward programs and maximize your savings. So, if you don’t already have a second card, get another credit card today!
Have Cards With Different Billing Cycles:
Keep a gap of at least 12 to 15 days in the billing cycle of your cards. By having 2 cards with different billing cycles, you can use one credit card for the first 15 days of the month and another one in the second half. This way you can use the grace period of both the cards, and extend the time between your actual swipe and the bill payment to 30-50 days.
Use Your Card As A Budgeting Tool:
Make all your spends on the card. This way you will be able to know exactly how much you’re spending, and where your money is going. What’s more? You’ll also be earning rewards for literally all of your spends.
Of course, you should only do this if you can actually pay off the entire balance every time. Ensure that you don’t spend more than the money you have in your bank account, and keep your spending from getting out of hand.
Keep An Eye On Your Card Statement And Credit Score:
If you’re using a credit card, the best credit card advice is to check your card statement every time. If will list all the expenses you have made, and show you if any false charges have been made. It will also give you a real picture of how much you’ve actually spent.
Also check your free credit report online frequently. A credit report is like a report card of your credit account so far. It also has a credit score, given to you by the credit bureau. This will help you ensure that all the information in your credit accounts is accurate. It will also help you know if you have been missing any payment or EMIs.
Now that we have the expert tips listed, we also have some credit card tips for first time users:
— Always stay within your budget, and don’t overspend just because you can swipe the card whenever you want.
— Keep an eye on the mobile alerts and ensure that you always know exactly how much you have spent on the card. This way you would know when you are reaching your budget, and when you are approaching your credit limit.
— Pay off the entire balance every single month. Paying just the minimum amount due is a very bad idea because high-interest rates are charged on the remaining amount.
— If, for whatever reason, you absolutely can’t pay the entire due, then pay as much as you can, and immediately convert the remaining into EMIs, This way you can save up on additional charges and have a lower interest rate at least.
Hope this helps you in using your credit cards effectively and efficiently. In case you still have any questions about credit cards, do let us know in the comments below. Until next time!
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