Right way to use a Credit Card: Credit Card is actually plastic money issued by financial institutions in the form of a rectangular plastic card that allows you to borrow money for your purchases within a limit. Its credit limit is decided by the card issuing institution based on your credit score and history. Usually credit cards with higher limits are available if you have a good score and a good credit history.
What is a Difference between credit card and Debit Card?
The main difference between credit card and debit card is that when you swipe a debit card, money is deducted from your bank account; Whereas, in case of credit cards, the money is charged from your pre-approved limit.
According to a article published on Cashmantra, Credit cards are issued by financial institutions on the basis of your salary or credit score. The main advantage of this is that you get to use the interest free amount for a fixed time while at the same time it becomes easy to keep track of your transactions. Its disadvantage is that if the outstanding amount is not paid on time, then along with interest charges, your CIBIL score can also get spoiled.
What is the use of credit card?
You can swipe a credit card to purchase a product or pay for a service or use it for online transactions. You can also withdraw cash from the credit card within a specified limit in emergency situations. Credit cards are usually beneficial provided that after applying for the credit card, you ensure that the amount borrowed is repaid within the stipulated time frame to avoid penalty charges.
Your credit card details are always safe with the card issuer and you should not share your credit card information with anyone to avoid fraud. Whether to take a credit card or not, the answer is that taking a well-organized credit card proves to be beneficial for the future.
Institutions give you 20 to 50 days to repay the amount used with the credit card.This is the interest free period that you get for about fifty days, for which you do not have to pay any interest. But you have to be very careful about the billing date because if you do not pay the bill on time then the interest rate is much higher than any other type of loan, around 36%-40% which can give problem. Many people spend so much from credit card. Hence today we are talking about what is the right way to use a credit card.
What is the right way to use a credit card?
As everyone knows that earlier credit cards were considered a privilege of the rich, but today a large number of people can avail credit cards. The reason being, credit card provides financial freedom and is more secure than hard cash. Lets talk about right way to use a credit card. Suppose we are going out somewhere, it is neither possible to carry one lakh rupees in pocket nor safe but it is easy and safe to carry the same credit card with limit of one lakh in pocket.
With a credit card you can buy now and pay later. It thus helps in a financial crisis. If that too is not enough, then credit cards come with a variety of offers and rewards which on the one hand save money while also provide lifestyle related benefits.
Apart from these rewards, you can get the most out of your credit card only when you use it smartly. So what is the right way to use a credit card, Let’s see some tips.
10 Tips from the Experts
1. Keep an Eye on your Spending
If you do not pay attention to your expenses, you can get into the debt trap. Keeping track of your credit card spending is important. Whenever you use your card for any transaction, there is no need to maintain a handwritten diary or expense list, yet keep a record so that remember that if you exceed your payment capacity, then the burden on the card is are not putting.
While using a credit card, keep in mind your repayment capacity and not the credit limit, as you cannot spend your entire salary just for paying credit card bills. If some measures are taken strictly, it will help in removing the excess spending tendency.
One strategy you can try is to set a limit yourself (Right way to use a credit card) for your card and only use your card until you go over the self-imposed limit. For example, if the limit of your card is 75000, then you decide 20000 on your behalf and consider it as the last limit.
After this, remove the card from yourself thinking that there is no limit left in it. In this way, you also protect yourself for any sudden big need. You should not use the card for the next month until the previous bill is paid.This can help you stay on budget and on top of your bill. Try to only use your card for the big stuff.
2. Set your Own Credit Limit
Did you know that you can adjust the credit limit of your card as per your requirement? Request your credit provider to set a limit that allows you to easily pay off before the due date. A credit limit that is too high may tempt you to spend extravagantly, while if it is too low it can hamper significant large transactions. Setting a proper credit limit is very important.
3. Check Credit Card Information Regularly
Keep a close watch on your credit card details. It is a good habit that you can keep track of your expenses by logging in once, as well as any extra charges that you will notice which may cause problems later. This will help you manage your finances and prioritize payments. This will also help detect and avoid any charges that may have missed your sight earlier.
4. Pay your Credit Card bills on time
It is well known to all, yet many people ignore this advice with dire consequences. Credit card lenders charge very high interest rates on the outstanding balance. So if you do not clear your credit card dues on time, you will end up paying heavily. In addition, defaulting on your bills affects your credit score. To avoid additional interest and maintain your credit score, pay your bills on time.
Failing to pay your credit card bills on time can have an adverse effect on your credit score. You may also get blocked for getting a credit card in future. If you’re afraid and can’t remember your due date, set an alarm on your phone a few days in advance or mark the date on your calendar. Another option: Adjust your online account settings so that your bill is paid by ecs on a certain day of the month.
5. Use Free Offers & Rewards
Bank companies offer rewards and incentives from time to time. This can be in the form of cashback or free vouchers. Contact your bank for new offers. You can also use your reward points to buy items you need. Choose from a range of credit cards from the bank that offer a range of services and benefits as per your needs.
6. Don’t fall into the trap of minimum payment
This mistake is often seen that people think that making the minimum payment on your card balance is enough. To avoid fines, you must pay at least your minimum bill on time. But to avoid hefty interest rates, you also need to pay the bill in full. Ignore the minimum balance, and make it a point to clear your full card balance every month. The minimum bill is just the interest and your original bill remains the same on which you may have to pay more interest.
7. Avoid Using your Card at ATMs
Your card has this facility that you can withdraw a fixed amount in the form of cash from an ATM when needed. You refrain from using this feature. Although allowed, withdrawing cash from ATMs attracts hefty charges as no interest free period is given for the same. From the day you withdraw cash, 36%-40% interest dominates you and of course there are many more options in the market for cheaper rate loans than this.You certainly wouldn’t want to make such hefty payments if it’s not very necessary.
8. Keep Your Credit Card Details Safe
Scammers keep finding new ways to defraud card users. One must educate oneself and be aware of new dangers. As a basic measure, always keep security details such as password, CVV number, OTP and expiry date private and secure. When handing over your card to someone, always know where it is being used. Care must be taken to swipe your card at any place except POS machines and ATMs. Unsecured swipes can cause your card to be cloned and misused.
9. Pay Attention to the Joining and Renewal Fees
Credit cards often have joining and renewal fees. However, there are cards that have no annual fee. While applying for the card, also consider the fee structure. The charges should be reasonable and covered by the benefits of the card. In addition, many cards allow a change in fee if you spend a certain amount annually. Many cards suggest you spend more in order to waive off the annual fee, which can be costly on your budget as well.
10. Get a Personal Loan if Needed
Credit cards also allow unsecured personal loans based on your credit history. If you need financial assistance, don’t look for loans anywhere else. Use your card to avail one. On this you are also offered easy EMIs in which you can repay your loan in several installments at low interest.
More importantly, you do not need any documents for this. The repayment schedule and timing are flexible, making it easy to manage your loan. You can also take advantage of zero interest EMI on many large equipment or banks’ schemes on purchase, although you may get that product at a lower discount in such a situation because companies recover the loss of zero interest given to you from there.
If you want to use credit properly, you need to adopt some simple habits that will let you enjoy the benefits of credit cards instead of giving up on credit altogether. With careful use, it can be a loyal ally in your daily transactions and can certainly become your trusted companion during emergencies.
(Article Source: Cashmantra)