Barring purchases on EMIs, always pay your dues in full every month. This is especially important if you’re going to go crazy with your festive shopping
Festive offers are all around us. With great offers, there’s also easy financing schemes which help make big-ticket purchases easier. Therefore, you have options for not only the things you want to buy, but you also have financing options like credit cards, personal loans, buy now pay later loans, and so on. Let’s look at what you need to keep in mind as you splurge with your credit card.
Set a festive shopping budget. When you shop with your credit card, it’s important your dues are easily payable. So find a number you’re comfortable with and keep your spends within it. When the festive season ends, your personal finances will be better for it.
Pick a card smartly
Each credit card has its own benefits, rewards, and incentives. If you’ve decided your shopping items, it’s worthwhile knowing which credit card would incentivise the purchase the best. Many big-ticket electronic items such as flagship smartphones have tie-ups with credit cards that offer handsome cashback and discounts. It will help you to use a card that provides the best rewards for your big-ticket purchase. If you don’t have that card, consider getting it.
Spending limit can be increased
If your spending limit is small and likely to exhaust during festive shopping, be in touch with your card provider. If you had overshot your limit previously and have a good repayment record, your card provider should enhance your limit. If this hasn’t happened automatically, you should speak to the provider and get it done.
Short term EMIs best
Credit card interest rates are steep. The longer you have dues on your card, the more the interest you pay. The interest also compounds each month, so it’s easy to run up an annualised interest charge of 40-50%. While no-cost, no-interest EMI options may be available, pay off your card dues in the shortest possible tenure to minimise borrowing costs.
Beware of cash use
Most credit cards will allow you to withdraw cash from ATMs. But there is no interest-free period for cash withdrawals on your credit card. Interest will start applying from the first day of your withdrawal. Therefore, exercise extreme care with this option. You may be better off shopping online where your transactions are incentivised in various ways.
Prepay the full amount
You have the option of paying a minimum amount due every month. This is typically 5% of your dues. Barring purchases on EMIs, always pay your dues in full every month. This is especially important if you’re going to go crazy with your festive shopping.
May impact other borrowings
If you’re also in the market for other loans such as home financing or a car loan, ensure that the festive shopping dues on your credit card dues have been paid off. If not, the dues will lower your credit score, which could increase the interest rate you will pay on new loans.
Compare loan options
Credit cards are perfect for mid-sized purchases, typically under `1 lakh. The dues can be cleared in one shot or in a few months, and interest can be minimised. If, however, you require a much bigger loan that you want to repay over 12-60 months, you may be better off taking a personal loan. The interest rates will be much lower.
Keep track of credit use
It’s easy to lose sight of your spending in the festive season. Which is why you need to track what you have spent, where your spend limit is, and when your due date is. If you spot any unrecognisable transactions, report them to your card provider immediately.
Check your credit score
Responsible credit behaviour involves regularly tracking your credit score. You can do free monthly checks of your score online. This is especially necessary after a season of big spends from your credit card, because these have the potential to lower your score.
The writer is CEO, BankBazaar.com