The use of plastic money has increased over
the years, especially post demonetisation. According to a recent media report,
by the end of Mar 2017, there were 29.8 million active Credit Cards in India.
Despite the credit aspect and associated interest charges, people have been
transacting in large sizes through Credit Cards. The easy availability,
advantage of paying through EMI, and rewards and discounts are the major attractions.
However, lack of financial discipline and careless usage can cost a hefty
price.
Let’s explore 10 smart ways in which you
can avoid getting into a debt or distress due to Credit Card usage.
Pay Due
Amount On Time
If you do not pay the outstanding amount on
or before the due date, you are charged with an interest rate, which ranges
between 24% and 48% p.a. On failing to pay the minimum due amount repeatedly,
your CIBIL score would get negatively impacted. So, make sure you pay the
outstanding amount on time to avoid paying interest and penalties.
One way of doing it is by setting a
reminder on phone. You can also set an auto debit instruction with your online
banking account for making payment of the Credit Card bill on a specific date
after the bill is generated.
Maintain
Low Card Utilisation Ratio
It is important that you do not exhaust the
complete Credit Card limit on a regular basis as it increases your credit
utilisation ratio, impacting your credit profile negatively in the long term.
Banks and financial institutions identify you to be credit hungry if your
credit utilisation ratio is high. A credit utilisation ratio of around 40% is
advisable.
Don’t
Withdraw Cash
When you withdraw cash using a Credit Card,
you do not get an interest-free period on it. You are charged with an interest
of around 24% to 48% p.a. from the day of withdrawal. It’s best to stick to
Debit Cards, when it comes to withdrawal of cash, and save the unnecessary
interest outgo.
Use The
Interest-Free Period Smartly
The easy accessibility of Credit Cards
often leads to spending beyond means. Remember, it is not a borrowing tool. If
you are in a real need to borrow, look for alternatives such as Personal Loan
or other secured loans. The interest rates on these loans are lower than that
of Credit Cards.
Make Good
Use Of Reward Points
Credit Cards come loaded with benefits such
as cashbacks, discounts, etc. Do watch out for such offers and save up on your
expenses while shopping. You can also earn reward points on specific merchandises.
Use The
Credit Card And Wallet Combination
Some e-wallet companies have tied up with
banks to offer interest-free credit period on transferring money to mobile
e-wallet. You can save up a lot more by availing the benefits offered by both
Credit Card and e-wallets.
Use
Multiple Credit Cards In Rotation
If you have multiple Credit Cards, use them
in rotation to keep the utilisation ratio in control. It would also help you to
keep all your accounts open and cards active in the long-term.
Get The
Right Card That Suits You
There are many types of Credit Cards
available in the market with some offering benefits on flight bookings while
some offering cashback on fuel etc. You must pick the one that suits your needs
best.
Redeem
Credit Card Reward Points On Time
The reward points that you accumulate over
time on merchandises can be redeemed to avail discount on transactions.
However, these reward points have a validity period. If you do not redeem the
Credit Card reward points before the expiry date, your accumulated reward
points get wasted. The validity period usually varies from one year to three
years.
Read Your
Credit Card Statement Regularly
Your Credit Card statement carries all the
charges, interest and penalties levied by the Credit Card company. You must
read this document without missing a detail. If there is an unaccounted
element, you must immediately report to the Credit Card company.
Smart use of the Credit Card not only saves
your money, but also improves your credit profile along with adding to your
financial reputation.
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