Top 7 Tips for Using Your Credit Card Wisely
With over 50 crore Credit Cards in circulation in the country, it wouldn’t be wrong to say that Indians are swiftly adopting cashless modes of payment. Card transactions are coupled with attractive benefits such as instant discounts, reward points, cashback, and the freedom of paying without having money in your wallet.
However, the use of Credit Cards also warrants a commendable level of financial discipline. Quite often, it so happens that in the light of the perks that Credit Card offers a user may fall prey to some debt traps. In many cases, users are unaware of the cautionary measures they should take while using Credit Cards.
Whether you are relatively new to Credit Cards or are thinking of applying for one of the reputed HDFC Credit Cards, make sure to read and follow the below-mentioned points:
1. Never carry a balance on your Credit Card to next month
With your Credit Card, you avail of a facility of carrying forward the balance to next month. Herein, you can pay out a minimum due amount and continue using your Credit Card. While it is tempting to avoid the bill payment, especially when paying the minimum balance helps you avert the late fee penalty, the carried balance will attract a high-interest rate. It can be one of the most costly mistakes to roll over the card balance.
Besides, carrying the balance more than once can considerably accumulate the amount as well as interest burden on your shoulders. Credit Card debts are one of the most expensive loans, and thus, it can eventually become difficult to clear them of. It could also become one of the major reasons for ruining your Credit Score.
2. Work towards a better credit history
When used wisely, a Credit Card can easily help you build a good Credit Score. Hence, once you get your Credit Card, use it regularly, while keeping the usage restricted to 20 to 30% of the approved limit. Make sure to pay every Credit Card bill in full and on or before the due date. Not only will it help the credit bureau perceive you as someone in good financial health but will also boost your score, thereby ensuring you have easy access to any loans you may need in the future.
3. Spend Only When You Need To
The best Credit Cards in India come with a wide array of offers and discounts, especially with pre-defined milestone benefits. For instance, a Credit Card provider may waiver your annual membership fee if you spend Rs. 2 Lakh or more in the current year using the card. As appealing as the idea of getting a free Credit Card membership sounds, you must be aware that such offers are only provided to encourage additional spending. Instead of falling for each cashback or discount offer, you should channelize your expenses such that you stay within your budget and are able to pay off your bills in a timely manner.
4. Maintain Optimal CUR
It is important to stay within your monthly credit limit when using your Credit Card. For instance, let say you are using a Citibank Rewards Credit Card. While this Citibank Credit Card comes packed with a host of rewards benefits, it is important to manage your Credit Utilisation Ratio. The CUR is the ratio of your monthly spending to that of the monthly credit limit. Maintaining an ideal CUR, preferably up to 30%, will let the credit bureau know that you are not excessively dependent on credit for your day-to-day expenses and that you enjoy good financial health. Moreover, this simple step will ensure that your expenses do not exceed your spending capacity.
5. Remember the phrase ‘Caveat Emptor’
Caveat Emptor, i.e. Buyer Beware, is a simple yet significant warning which suggests that it is the buyer’s onus to analyse the seller’s offering. Regardless of the welcome bonus, or the low-interest rate that a Credit Card provider may be offering, you must double-check all the remaining features, terms and conditions of the Credit Card and see whether or not will it prove to be a cost-effective alternative.
Besides, you must also not just choose to buy a Credit Card owing to the push marketing efforts of the provider and ongoing offers. You should carefully analyse the need for a Credit Card in your day-to-day life, and only if it fits your personal and financial goals, should you go ahead to make this purchase.
6. Opt for a Secured Credit Card
If you have a poor credit history or are susceptible to reckless spending behaviour, you can opt for a Secured Credit Card. This card works the same as a regular Credit Card, except for the fact that your credit limit is governed by the market value of the asset that you pledge in lieu of the card. If at any point in time, you are unable to pay your monthly bills in a timely manner, the Credit Card provider can exercise their right to claim ownership on the collateral. In order to avert this situation, you will be bound to stay disciplined with respect to your spending behaviour. Now that’s a great way to keep yourself out of a debt trap! Isn’t it?
7. Automate Your Bill Payments
These days you can easily deploy an Autopay Service and ensure that your Credit Card bills are automatically paid, on a pre-fixed date, every month. This will reflect amazingly well on your credit history, and help you avert the late fee or high-interest rates that outstanding bills can incur. Moreover, it will ensure that you spend only as much as you will be in a position to repay in the coming month, thus discouraging you from any unnecessary expenditure.
Credit Cards can thus be a great financial tool for building a good credit score and staying creditworthy for all seasons of life.
Also Read: Top Ten Reasons to Use a Credit Card
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