Know How To Use Your Credit Cards Smartly

Aug 03, 2018 | 3 months ago | Read Time: 3 minutes | By iKnowledge Team

Use Your Credit Card Smartly

First day of school. First day of college. First time opening a bank account. First job.

Like so many ‘first’s in life, getting a credit card for Amit was an overwhelming feeling. It gave him the freedom to swipe and pay for goods instead of cash. Very quickly, he used the credit card for all his payments. At the end of the month, reality struck. The amount on his credit card statement shocked him beyond his wits. He had accumulated a very debt. He realised that the freedom to spend comes with responsibility.

A credit card can prove to be deep debt trap if not used wisely. There are ways to avoid this trap and yet avail all its benefits.

Let’s look how you can prevent a similar situation

Plan A Budget For Yourself

Say you have a credit limit of Rs. 1 Lakh. Spending the whole thing is not advisable. Knowing how much you must spend each month can help you get a clear understanding of where your income will go. You can also use an online budget planner to help. Be cautious with your expenses and do not spend more than what you can repay.

Pay Entire Balance On Time

The key to not defaulting on your credit card payments is to set up automatic transfers. This will ensure timely payments without taking the time out to remember. Make prompt payments and will not have to pay the interest fee. Moreover, it also ensures you don’t fall into a debt.

Avoid Binge Spending

Having a credit card doesn’t mean you binge-spend. Pay utility bills on time through the card and avoid spending cash. Optimal use of the card also helps you maintain a good credit score, provided you spend within the limit. Binge spending can get you in debt faster than you can realise.

Avoid Cash Withdrawals

Cash withdrawals made using a credit card will earn you an interest rate from day one. You could also face additional charges levied by the bank. If you do not have an option and you must make a withdrawal, aim to repay as soon as possible, no matter the due date. Since the interest on cash withdrawals are charged on the daily balance, a lower balance will fetch you lower interest.

Be Choosy With Reward Points

Different credit cards come with different reward points. Where Credit Card A gives you 100 points on every purchase of Rs. 1000, Credit Card B gives you 150 points for the same amount of purchase. Be prudent when you avail these offers. Ensure not to cross your spending limit.

Be Aware of The Limit

Every credit card issuer specifies a certain usage limit. This limit must be taken seriously. Crossing this limit may portray a credit-hungry attitude and may reflect negatively on your credit score. This may affect your future applications to lenders. Ideally, you must only spend up to 30% of the specified credit limit.

Read Between The Lines

Every promotion comes with a set of terms and conditions. Generally signified with a star (*), it can get time consuming to read the legal language in tiny font. But, it is important to go through them and be aware of all applicable conditions.

To sum up

Credit cards are great. They offer convenience and can be a useful way to manage your finances. However, if you fail to exercise caution, you may end up falling into a credit card debt trap. Use them wisely and you will be able to enjoy its rewards and financial flexibility to your advantage. And if you have fallen into a bad debt, opt for a term insurance plan to protect your family from its debts, in your absence.

Advt. no.: IA/Jul 2018/4254


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