Many Indians are not aware if used correctly what an important financial tool credit card can be. Usually, a lot of people use credit cards irresponsibly and end up in debt.
In India, talking about personal finances outside your immediate family has always been an awkward conversation. Whether it is about sharing the food bill at a restaurant or planning a travel budget, people don’t like to openly discuss their plans or apprehensions about financial matters. Industry experts say this is one of the reasons why we lag behind in financial literacy as compared to the rest of the world. We pile up debts and spillover on credit card payments as we are unaware of how to manage our finances better.
Many Indians are not aware if used correctly what an important financial tool credit card can be. A lot of people use credit cards irresponsibly and end up in debt. However, contrary to popular belief, if credit cards are used wisely, they can help us in many ways. In fact, it is actually much better paying all expenses with credit cards than with debit cards and keeping cash transactions to a minimum.
Here is how to use credit cards strategically to practice better financial discipline;
Before you commit, ask yourself questions – Why do you really need a credit card? Do you have a source of income for paying back any debt, if needed? Are you aware of savings? Experts say these are some of the important questions that one needs to ask before getting a credit card.
Planning a budget is key – It’s best to plan a budget on a monthly basis to ensure that you are able to spend on necessities, a better lifestyle and savings. This will help structure your finances and help gain visibility into your credit card expenses to re-evaluate spendings. This will also help know your spending limit.
Use a credit card that compliments your budget – The right way of using your credit cards can help you benefit in a lot of ways that you might not be aware of. Experts say all one need to do is make expenses that are well-planned, which means, plan your budget and allocate a portion of your spending. Once done, you can then use a fixed amount for your purchases. This will not just provide you with a healthy balance but with rewards as well.
Pay your bills on time – To become financially independent, it is important to make sure that bills are paid on time. There are several applications and credit card payment platforms like CRED, Paytm, PhonePe, Google Pay, Walnut, etc. that could help you set reminders to stay up to date with your bills and payments, and incentivises good financial behaviour.
Reward yourself with big purchases – When you use a credit card for big purchases, your cash reserve remains available for other transactions. You also end up earning rewards, purchase benefits, get promotional rates, etc. In case of an unforeseen emergency, a credit card may be a viable option if you’re unable to pay for all at once. Using a credit card is often an easier and less expensive alternative to taking out an emergency loan.
Maintaining a good credit score – A credit score is a number that denotes an individual’s creditworthiness. By practising good financial habits such as paying bills on time and ensuring to stay within the credit limit can help achieve a good credit score over time.
Note that, experts say even though there are various perks of having a credit card, they require you to be disciplined, which signifies your creditworthiness and help develop responsible credit habits. Additionally, admission to platforms like CRED is based only on a healthy credit score.