Here's how your credit card can be put to an optimum use for meeting shortfalls and managing your finances during the festive season.
The festive season is considered as an auspicious period for purchasing big ticket items, renovating homes and gifting near and dear ones. As a result, those who cannot meet these expenditures from their own resources avail personal loans and various consumer loans to mitigate their shortfalls during the festive season.
Let’s understand how your credit card can be put to an optimum use for meeting shortfalls and managing your finances during the festive season.
1. Improves credit score
As transactions via credit cards are the same as taking loans, repaying credit card dues by the due date has a similar positive impact on your credit score as any other loan type. Unlike loans, usage of credit card does not involve any interest cost as long as you repay your bills in full by due date. This makes credit cards one of the most convenient and cost effective ways of building your credit score. You only need to ensure timely repayment of credit card dues in full and avoid spending beyond 30% of your credit limit. Not doing so can adversely impact your credit score, incur hefty finance charges of around 30-49% p.a. and hurt your future loan and credit card eligibility.
2. Saves money via numerous credit card benefits
To attract buyers during the festive season, numerous merchants and retailers offer a wide range of benefits in the form of higher reward points, discounts, vouchers, cash back, etc on credit card transactions. You must visit the offer section of your credit card and search the retail outlet or online platform where such discounts and cash backs are valid.
Even if you are not able to find such offers, using your credit cards for your festive spending would accumulate the usual reward points. Also, as most credit cards come with an expiry date for their reward points, try and redeem your accumulated reward points while making your festive purchases.
3. Cash flow management via interest-free period
Interest-free period refers to the time period between your credit card transaction date and the due date of the relevant billing cycle. During the interest free period duration, credit card issuers do not charge any interest on transactions, provided your credit card outstanding is repaid in full by the due date. The interest free period can range anywhere between 18 and 55 days on the basis of your transaction dates. Thus, your credit card issuers finance your transactions free of cost, helping you earn notional interest benefit. Those having multiple cards should spread their big ticket card spends among multiple credit cards in such a way that they are able to avail maximum interest-free period for each of those spends.
4. Option to convert your big ticket spends into EMIs
It is quite common during the festive season to make credit card spends beyond one’s immediate repayment capacity. The best way to manage this situation is to convert full or a part of their credit card bills into EMIs depending on one’s repayment capacity. The tenure of EMI conversion can go up to 5 years allowing cardholders to comfortably repay their dues as per their repayment capacity at a much lower cost.
5. Availability of No-Cost EMIs
Many credit card issuers enter into tie-ups with merchants to offer no-cost EMIs on their services and merchandise. EMI options are offered on both online and offline channels. The interest costs incurred on no-cost-EMIs are borne by merchants whereas the cardholders are only needed to bear the purchase cost via EMIs. A few card issuers also offer additional discounts to their credit card holders on making purchases via no-cost EMIs basis their tie-up with the merchant/ manufacturer.
6. Pre-approved loans for immediate fund requirements
Cardholders with excellent repayment history and transaction track record are usually offered loan against credit card by their card issuers. These are pre-approved loans sanctioned against the credit limits of the card holders. The ‘pre-approved’ nature of these loans leads them to have one of the fastest disbursals among all credit options. Most card issuers usually disburse the loan amount within the same day of making the loan application. Some card issuers also offer additional credit facilities to their select card holders with the loan amount being over and above their sanctioned credit limit. The availability of such pre-approved loans offers instant credit access to the cardholders to deal with financial shortages faced for festive spends.
(The author is Director, Paisabazaar.com)