Everyday Money: Tips To Use Your Credit Card Smartly
Credit cards will work to your advantage only if you use them wisely
Credit cards are frowned upon as easy credit that can imbalance your finances. Or worse, push you into a debt trap. However, credit cards can be an effective tool in your financial kit if used responsibly.
It’s true that credit cards carry an interest rate component but the rewards and other perks that they offer can help you save significantly, if used smartly. Here are some tips to help you make the most of your credit card.
Save By Maximising Reward Points
Credit card companies offer rewards in the form of points, cashback and vouchers on different purchases. For instance, basic cards give 1-2 reward points on every INR 125 spent, whereas others give 0.5-1.5 per cent cashback on payment of utility bills or purchase of movie tickets and on dining out. Such small savings can translate into a total saving of INR 1,000-1,500 per month.
Co-branded cards give hefty rewards on purchases from select partners. However, such cards should be bought only if you regularly shop from the merchants that have tied-up with those cards. For instance, fuel cards give 4-5 reward points for every INR 150 purchase. Similarly, purchase made from affiliated shopping outlets can bag you extra reward points on every purchase.
Some premium cards come with guaranteed vouchers or privileges, such as access to airport lounges. Take note of the rewards your card is offering and redeem them from time to time to get the most out of your credit card. Accumulated reward points can be redeemed in cash or kind.
Pay Bills on Time and In Full
Though this is obvious, most credit card users carry forward the outstanding amount after paying the minimum due. This practice can cost you dearly over time as credit card companies impose heavy interest rate on outstanding amount. Credit card interest can balloon up to 40 per cent in a year if you keep rolling over the balance amount.
Moreover, partial or non-payment of bills will also hamper your credit score. Outstanding balance forwarded every month will show on your credit report that you are unable to pay our bills in full, which could become a problem when you apply for a loan at a later date. Hence, pay your credit card bills on time and in full every month to keep your credit score healthy and avoid paying extra on interest rates.
Related Read: Why Your Credit Score Matters
Take Note of Costs
We keep receiving sales calls regularly offering a ‘free’ credit card. But, there is no such thing as a free card. Every credit card comes with a joining fee or an annual fee depending on the type of card that you are signing up for. Those cards that come under the ‘free’ tag waive of joining and annual fee only at the time of signing up but start charging annual fees from second year onwards. Cash withdrawal through credit cards attracts an additional interest of 2-4 per cent on every transaction, so avoid it at all costs.
Make sure to read the finer details before signing up for a card to ascertain the costs you will have to bear from your pocket. Joining fee of credit cards is typically between INR 200-300 whereas annual fee, or service charge, ranges from INR 500 to INR 3,000. Some companies waive off annual fee only if you make a certain amount of transactions within a given period.