How to Use Credit Cards Wisely
We are living in the world where plastic money has its own value. Use credit cards wisely, as credit is available just by swiping a plastic card at a shopping outlet without any questions being asked.
Banks in order to attract more customers give frenzy offers such as travel insurance, discounts in mega outlets thereby urging you to spend more. Credit Cards come under three categories namely gold, silver and platinum but mind you there is hardly any difference in the interest charges and annual fees apart from the maximum credit limit.
Are you facing any trouble in settling your credit card dues like Mr. Joshi?
Mr. Joshi residing in Pune living on a monthly salary of Rs 55000 made a big mistake when he paid only the minimum amount due against his credit card bill for 7 consecutive months but was unable to pay the full outstanding bill each time.
After 10 months, he got a shock to read his credit card statement showing a total outstanding more than 1 Lakh because of high interest charge of Rs 22000 calculated @ 3.5% on a monthly basis levied against his credit card account for last 10 months. Plastic money is quite easy to use but there are several mistakes which a credit card holder like Mr. Joshi makes while using it.
Mistakes while using a Credit Card
Listed below are some common mistakes made. Let’s learn about how to use credit cards wisely and make our life less stressful.
1. Using your credit card like a debit Card
How do you decide whether to use debit card or a credit card to pay shopping bills,Use buying LCD TV, paying petrol bills and restaurant bills.
Debit cards are usually linked to your bank savings or current account and whatever amount you withdraw or sweep at a shopping mall would get debited from your savings or current account.
Credit cards on the flipside are a way where you get a small loan from the bank and pay it later. But you pay heavy penalty and interest charges of around 3.5% per month, if payments are not made within the due date.
This is one of the biggest mistakes which a credit card user makes which needs to be rectified under all circumstances while managing your personal finance. Use credit cards wisely and make regular payments to help build a good credit history.
Make use of your debit Card instead of Credit Card to save heavy interest cost wherever possible.
2. Not paying full outstanding balance
Most of the credit card users – because of their tight pockets during the end of the month pay just the minimum amount balance, and not the entire bill amount.
Mind you, you are charged interest rate or so called finance charges of around 36-42% per annum on the amount not paid to the bank before the due date.
Using credit cards wisely is just like using short term loans @ 36-42% per annum which is quite high. Use credit cards wisely and don’t get into the habit of making minimum only payments. By making only the minimum payment each month increases the amount of time it will take to pay off the debt.
And if at times your credit card bill runs in lakhs, not in thousands, you may plan to go for a personal loan @ 16% per annum which is much lower than 42% annual interest charged by the credit card companies.
Another option which is worth considering – is encashing some of your mutual fund units or breaking your fixed deposits to pay heavy credit card bills. Though this is advised only when your credit card bill exceeds your payment capacity.
Pay off entire outstanding bill each month, rather than minimum amount due to be paid.
3. Falling prey to aggressive marketing gimmicks
Everyone in the world is there for making money and banks are not different. Various banks offering various types of cards offer lucrative schemes to their customers by offering them loyalty points.
It is highly advisable not to fall prey to these marketing stunts just because the banks offer you to waive off your annual fees. In return, banks may offer you some discount coupons of some mega store which you may end up remaining unused.
These credit card reward schemes can make you earn rewards points on any purchase which you make through a credit card but the effective reward for you can’t be more than 2%.
Avoid answering marketing calls from credit card telecallers and falling prey to their lucrative offers
4. Withdrawing cash from Credit Card
Some people fail to understand the difference between two plastic cards- debit cards and credit cards. Withdrawing cash from credit cards from an ATM machine attracts heavy penalty which may be upto Rs 500 for one time withdrawal from ATM machine so, use credit card wisely.
Don’t treat your credit card as a tool to withdraw cash from it whenever necessary, Use other options like bank saving account or a debit card.
Don’t withdraw cash from Credit Card, instead use a debit card.
5. Using your Credit Card Overseas
You have to shell out heavy transaction fee for any overseas purchase on the credit card apart from the fluctuations happening in the currency exchange rates. In such cases, you are advised to pay off your dues in time which otherwise can attract high penalty.
Usage of credit card must be restricted to the country from where it is issued.
6. Late Payment Charges
This happens to a lot of credit card users who tend to postpone their credit card payments till the last (due) date. This procrastination, thereby gives banks enough chance to levy late fee charges if the amount doesn’t gets settled on time against the credit card bill next day.
Mind you, the last day for payment mentioned on your credit card statement is the date when the payment must reach the bank.
Ensure discipline in credit card usage and pay your credit card bill as soon as you receive it.
7. Using Too Many Credit Cards as a status symbol
It is quite difficult for any person to keep in mind the due dates for his mobile bill, due dates for his wife mobile bill, electricity bill and society maintenance fees. Applying for and having too many credit cards with no basic usage intention is bad. It could result in penalties in the form of heavy interest costs and late payment charges by the credit card companies.
One debit card and one credit card is enough for any middle class family. Try not to use more than one debit and credit card.
I hope Mr. Joshi must have learnt a lot by reading the seven mistakes while using a credit card and would be able to implement the same in his personal financial life.
Conclusion – Use Credit Cards Wisely
Use credit cards wisely because credit cards are actually high interest loans in disguise. No doubt credit cards provide a great deal of convenience to shoppers, an over and excessive use of it can cause people trapped in severe debt. So, before you swipe your card today think twice!