We get multiple calls for credit card availability but owning multiple cards can lead to over-spending. Lenders also do not like people applying for too many cards.
Credit cards are popularly known for their instant credit facility. They are benefiting as you do not need to carry cash all the time. Credit cards have also revolutionized the way people look at availing a loan in India. Unlike other loans, the credit card advance facility also doesn’t require any documentation or any further approval from the bank. The cash advance feature of credit cards, however, comes with certain terms and conditions. This card needs to be used very carefully or it can cause havoc with one’s finances. The card needs to be used judiciously, or like most, you can also fall into the debt trap of credit cards.
If you have also got your first credit card and are feeling empowered, here are a few credit card-related errors that you need to avoid:
- Credit cardholders end up spending more as compared to their repayment ability. Experts suggest when using credit cards one should only buy things that one needs and spend what one will be able to pay off fully at the end of that month.
- Many credit card users use their cards to withdraw cash from ATMs. Starting from the date of withdrawal this attracts interest till it is paid in full.
- If credit cards are used abroad, banks levy additional charges. For international transactions, charges like cross-currency charges are also included, which make credit cards expensive.
- Always try to pay the full amount within the due date. Most people end up missing the due date. Hence, keep the due date for payment in mind. You can also give an Electronic Clearance Service (ECS) mandate for automatic payment. With late payment, you will also have to pay a late fee, along with the interest.
- One of the basic mistakes made by most credit card users, especially inexperienced ones, is that they pay only the minimum amount due every month. Cardholders think paying the minimum balance will not attract any interest or late fee, but that’s not the case and it gradually leads to a debt trap. The minimum due amount is only around 5 per cent of the outstanding dues. Paying the minimum amount might exempt the cardholder from late payment fee, but you will be attracting heavy interest on the balance.
- The rollover of credit attracts the highest charges. The remaining amount after the minimum due amount gets rolled over to the next billing cycle and attracts charges after.
- Generally, credit cards charge around 3.5 per cent per month on the average daily balance method, which turns out to be 42 per cent annually.
- Depending on an individual’s income and credit history, all credit cards come with a maximum spending limit. Your credit score will also take a beating if you use your credit card to the maximum permissible limit repeatedly. With this, it will affect your ability to borrow in the future.
- Credit card companies keep calling for credit card availability but owning multiple cards can lead to over-spending. Hence, try to have a limited number of cards, which will help you manage your expenses.
- If used properly and in a disciplined manner, you can earn cash backs, reward points, and travel points using your credit cards. Most people don’t know this and, hence, do not use the points they have accumulated. However, you should also not indulge in excessive spending just to earn cash back and reward points.