Use Credit Cards Wisely and Reap the Benefits

A credit card, like any other financial instrument, can be a very handy tool provided it is used wisely and all the terms and conditions are understood before taking it.

A credit card basically allows you to purchase or pay for things on a “short-term interest-free credit”. Normally, you would pay for any item that you buy or any bills due via cash or a debit card. For that, it is necessary for you to have that much money in your hand or in your bank account. You cannot pay for anything if you don’t have the money. This can sometimes be a problem when you need to buy or pay for something urgently but are out of cash at that moment. You then need to go to the ATM or use your debit card, or borrow it from someone you know. Credit cards solve this problem.

Also, nowadays a lot of credit cards come up with a lot of offers on air/rail tickets, movie tickets, etc. where you get discounts for paying with the credit card. This can be very beneficial and you can end up saving a substantial amount of money.

To summarise, a card is advantageous as follows:

  • Allows you to buy things even if you don’t have cash at the moment, which is good provided you’re sure you can pay for it later within the interest-free credit period (usually upto 50 days).
  • Gives you reward points or even cash discounts on several categories of purchases and payments. The same payment, if made via cash or debit card, may not give you the same benefit. So you are effectively paying less, while not even paying from your pocket at the moment! Your money stays that much longer with you!
  • Reward points can be redeemed for a variety of gifts, gift vouchers or frequent flyer miles.

Some things to take care of:



  • Always keep a track of your monthly statements and pay the dues on time before the last date mentioned in the statement. If you don’t receive your statement, call the card company and inform them. Meanwhile, check the outstanding on the card’s website. Always opt for email statements in addition to paper statements.
  • Read the statement carefully. Rarely, there might be some charges or purchases you never made. Raise this with the bank immediately. There also might be some schemes they bundle on you without asking. Tell them to discontinue it immediately.
  • Always pay the full amount (not even a paisa less) when paying your card dues. This ensures you pay nothing extra while reaping all the benefits of the card. If for any reason you can’t pay the full amount (not enough cash), at least pay the minimum due amount to avoid late payment charges. The rest of the amount will attract interest penalty of around 3% per month till you pay it off.
  • Never EVER withdraw money from an ATM using a credit card. Use your debit card instead. If you don’t have cash but have some time, then go in for a personal loan that will have an interest rate of around 14% per annum. Credit cards charge an interest of around 3% per month, that adds up to 36% per annum! This is nothing but daylight robbery. Do it only if you need money urgently and have no time to even go and borrow it from a friend.
  • Get your monthly credit limit reduced if you think you’re not likely to spend so much on your card in a month. Don’t make a high credit limit an ego issue!
  • Always look out for offers before you make any purchases. Some or the other card might have an offer on that item (more rewards, cash discount, freebies, etc.). Pay with that card if so.
  • Always keep a minimum of credit cards. Choose only the cards that you feel have the maximum offers, discounts, etc. round the year.
  • Don’t use your card if the place appears suspicious. Pay by cash instead. Or go elsewhere.
  • Report any loss of cards immediately. Don’t delay it under any circumstances. A good practice is to store the phone numbers of the banks who have issued the cards in your phone, so that you can call them up straightaway once you discover that a card has been lost.

So, wish you happy spending on your credit card!


Signature

4 Comments

  1. VIkas KapoorVIkas Kapoor04-27-2010

    Just a small clarification on point 3 of "Things to take care of "

    -You say that after minimum amount due is paid, the REST of the amount is charged 3%. In my opinion, and authenticated by HDFC, it is NOT the rest of the amount , but it is the Whole amount+ additional amount of the next billing cycle as well that is charged.
    I still do not believe this and have no other confirmations.Let me know if you can throw some more light or verify with your bank.Or may be, it is different for different banks ??

  2. RamanRaman10-22-2009

    Some more things
    1) If you are maintaining salary account with the same bank of which you are carrying Credit Card(CC), you can avail auto debit facilities provided by most banks.
    2) Try to do purchases on the first day of your card billing cycle. e.g If credit period is 50 days and your bill is generated on 8th every month. And if you purchase on 9th of month this payment will be due on 28th of next month and considering now banks have started giving interest on net balance maintained and not minimum balance maintained in month it can result in substantial saving.

    • Vijay PadiyarVijay Padiyar10-23-2009

      Hi Raman

      Thanks for your comments!

      Your second point is very useful. As for your first point, I have my reservations about auto debit. Because if there are some transactions that are disputed or they have put some illegal charges or schemes on your head, then it becomes a headache with auto debit, as you now have to run after them to get back your money. If you really trust your card company, then perhaps you can go for auto debit.

      Alternatively, one can go for auto debit for the minimum payable amount, as that will help avoid any chances of late payment ever.

      Regards

      Vijay

    • Vijay PadiyarVijay Padiyar10-23-2009

      This article is an example of what I was referring to earlier: http://business.rediff.com/column/2009/oct/23/perfin-credit-cards-or-misery-cards.htm

Leave a Reply