Many of the new credit card users are unfamiliar with the features and rules governing the 2-inch by 3-inch piece of plastic in their wallets. This lack of awareness can lead to high charges, missing out on benefits and even denting their credit worthiness.
Every year an estimated 15 million new credit cards are issued in India. But many of the new users are unfamiliar with the features and rules governing the 2-inch by 3-inch piece of plastic in their wallets. This lack of awareness can lead to high charges, missing out on benefits and even denting their credit worthiness. Here are some smart tips on how to make the most of your credit card.
Choose appropriate card
Banks and credit card companies are reaching out to new customers. But don’t sign up for a new card without checking whether its features are relevant to your spending pattern. If you use a vehicle extensively, go for a co-branded fuel card that waives the fuel surcharge and offers benefits on spends. If you travel a lot, go for a card that offers maximum flexibility of airport lounge facilities, along with frequent flyer points that can be accumulated without any time limit. Cards that offer higher reward points for online usage will suit people who do a lot of digital transactions. Similarly, if you dine out often, pick a card that offers attractive discounts on dining options.
Pay in full and on time
A credit card is a source of free credit as also the costliest borrowing option. Confused? If you clear credit card dues in full and as per schedule, there is no charge on the credit extended by the bank. However if you miss the due date, you will not only be slapped with a penalty, but also be charged an extremely high rate of interest on the unpaid amount. You can roll over the balance by paying a minimum 5% of the billed amount, but be ready to shell out 3-4% a month on the outstandings. It’s a good idea to automate the payment for your credit card bill so that even if you forget the payment deadline, your bank doesn’t.
Get more than one card
If credit cards make it easy to spend, won’t too many cards push the user into a debt trap? Right and wrong because it depends on your spending discipline. In fact, you can manage expenses better. Credit card issuers tie up with retailers and service providers and more than one card increases your chances of grabbing such deals.
Maximise free credit period
Multiple cards also help maximise the interest-free period on purchases. As a rule, use a card where the billing cycle is farthest. Suppose you have two cards with billing cycles ending on the 15th and the 30th of every month. Use card A for shopping till the 15th, and then switch to card B. Switch back to card A after the 30th. Used smartly, this can fetch you up to 40-45 days of interest-free credit. Another plus point is that you can transfer the balance from one card to another if you are facing a cash crunch. Most card issuers let you transfer unpaid balance and some don’t even charge for the first 1-2 months. Only, don’t make balance transfer a habit because it could be the start of a perilous descent into a debt trap.
Convert to EMIs if facing a crunch
Paying off your full bill by the due date is definitely the best thing to do. But if you are facing a crunch, you can convert your outstanding dues into easy EMIs. The interest charged is 18-24% per year, but that still works out better than the 3-4% you pay per month when you roll over the balance.
Protect your credit score
How you use your card and when you pay your bills impacts your credit score. Don’t sully your credit history by missing a due date or racking up a bill you can’t afford. Stick to a budget when you go shopping. Work out a repayment plan before you use your card, especially for high-value purchases.
In conclusion, meticulously match credit card features with your personal usage, and keep expenses within your serviceable limits. Most importantly, always observe safety protocols as mandated by the issuing bank.
Credit card perks
- Credit card issuers tie-up with retailers, brands and service providers. Having more than one card increases your chances of grabbing deals
- With multiple cards is that you can transfer the balance from one card to another if you are facing a cash crunch
- Multiple cards also help maximise the interest-free period on purchases. As a rule, use a card where the billing cycle is farthest
(By Raj Khosla. The writer is managing director, MyMoneyMantra.com)