Credit cards have always been an area of concern when someone starts taking care of the family and personal expenses. Many unnecessary expenses in the family get directly linked to the abuse of credit cards. This easy credit sometimes gets so much misused that it affects your overall financial profile and also puts you into debt trouble.
Now let’s look at it from another angle. Are credit cards really that bad? After all, it is one of the convenient ways to carry money and make payments. For online shopping, travelling abroad and also to manage the short term emergency requirement, your credit cards come handy.
Actually credit card is bane or boon depends on the way you use it. Many people feel that they have too much credit cards so cutting down some of them, might reduce their overall spending. But what they don’t realize is that problem is not in having too many cards, but in not using the credit wisely.
Easy availability of credit itself sometimes leads to abuse of the same. When you keep revolving your credit card balance, keep making big purchases without thinking about your family budget and converting the purchases into EMIs and by doing this pay heavy on the interest charges, then slowly you are letting yourself enter the debt trap. All this also put pressure on your credit score, which in turn restricts the availability of other lines of credit for you.
But do you know that having multiple credit cards is not looked down upon by credit rating agencies. In fact if you have more than one credit card and none of them is getting used, then it is a positive sign for you. It is looked at as even after having high availability of credit at your disposal, you are managing your personal finances so well that you do not need to use any of those credit facilities.
This does not mean that you should start applying for new credit cards now, as this would depict that you are going credit hungry. Credit cards come under unsecured credit line, so if someone asks for more, than that person would always be looked with suspicion in financial world.
Credit cards are there to make your life convenient. In this internet era it is difficult to imagine someone not using plastic money. Below are few ways with which you can use your cards wisely.
1. Pay in full and within credit cycle:
Understand the credit cycle of the card. Credit cycle comprise of your billing cycle and grace period. Say your billing cycle is from 1st of every month to 30th day of month, then on 1st of next month your bill gets generated and reflect the purchases made during last billing cycle, along with any fees, finance charges etc. Once the bill generates you will be given some 15-20 days to clear the payment, this period is termed as grace period.
If bill does not get cleared off on or before due date i.e last day of grace period, then late payment charges and also heavy interest charges gets levied. Even if you pay the minimum payment amount which is 5% of the total due then also you don’t get absolved from interest penalty. Your payments and non-payments are regularly reported to CIBIL, and thus impact your credit score.
( Read: factors affecting cibil score)
If you don’t want to fall in trap of credit card, then do make the payment before due date and never carry forward the credit card balance to next billing cycle.
2. Spend as per family budget
Overspending is quite natural when you spend without budget. Always have budget in mind while using cards. And if there is no expenditure which requires credit card usage then better to keep it away from you in some safe place. When you don’t carry the card you won’t be tempted to spend on unimportant things.
Online discount offers and annual sale would not attract you when you know importance of budget, where to spend and why to spend. And if the expenditure is important then make it in the first few days of start of billing cycle to get the maximum interest free credit period.
3. Make use of reward points and cash back offers
To make credit card attractive to use, card issuer gives some reward points or cash back, every time you swipe your card at some specified point of sales (POS). These reward points can then be redeemed to set off with the bill amount due or to make some specific purchases from specific counters. Knowing your credit card benefits will help you make use of such facilities. There are some family expenses, which are very much part of budget, that can be paid through credit cards to enjoy reward point benefits.
4. Use cards safely
Credit card fraud and Identity theft are major concerns, when online shopping is increasing at rampant pace. Though law protects the card holder from the payment towards such fraudulent transactions and charges but still it is the responsibility of the card holder to keep the information safe. (Read: 15 tips to avoid overspending and do safe online shopping)
Do check out the credit card statement regularly; keep the payments receipts safe and regularly tally with your statement, Keep your card safe and report loss of card immediately to the card issuer bank.
Always remember that credit card is just another line of easy credit. Whenever you are using it, you are taking interest free loan for some period and if you don’t pay back the money in time you will be penalized very heavily. When you have control on your spending, have focus on goals and understand the effects and after effects of using credit cards, then surely you would use it to your advantage and won’t let this be burden on you.
( This article was originally written by me for moneycontrol.com)