Using Credit cards is quite normal today. But, many feel that it might drain their money. Well, it’s a fact that credit cards make your finances easier but you need to tread very carefully into the world of credit. It’s a bit tricky and hence needs proper attention. Credit cards can work wonders in building your Credit Score and managing your finances but only if you manage it properly. This is because the interest charged on credit cards are huge and usually ranges from 16 to 34% p.a, so in case you are using a credit card and not paying the bills on time, then the accumulated interest can cost you so much.
Tips which will help you make your Credit Card management easier.
Don’t Max-up your Credit Limit
Credit cards come with a credit limit within which you are allowed to use the money. But with the attractive offers from the e-commerce portals, it becomes very difficult to resist the temptation and not max out your limit. Well, maxing up your credit utilization is never wise and can affect your finances. It is never suggested to utilize more than 30% of your credit limit. As using beyond 30% of the credit limit on your card adversely affects your CIBIL score. It shows that you are very dependent on credit and hence can affect your future creditworthiness as well. However, most people don’t have this concept as they think it’s fine to use credit cards to the maximum limit. But, it’s not true really. Always use your credit card to make small purchases and pay it off before the due date and avoid using it to the maximum limit.
Understand the Importance of Due Date
For credit cards, there is one date that shows up on your statement every month, that is the due date. And you are recommended to pay your credit card outstanding dues by this day, every month. Well, there is the option which allows you to pay only the minimum amount but paying it in full is always considered good and saves you from paying interest.
It is also advised not to miss even a single payment as a missed payment will show up on your Credit Report and will adversely affect your CIBIL score. Hence it is always better to add your due date to the financial calendar or reminder to your mobile calendar to make payment before due dates.
Say no to Impulse Buying through Credit Cards
Impulse buying through Credit Cards can lead to some serious issues when your card limit is low. Well, using a credit card is never an issue, but repaying it in the near future can lead to some serious financial issues for you. You get tempted by the attractive offers and starting making purchases without thinking about the repayment. By doing this you end up using your card to the maximum limit and then repaying it in full becomes difficult. In such a condition you opt for the EMI option or minimum payment. This way interest starts accumulating and you end up being into a debt trap. So, it is always better to use your credit card as per your repayment capacity.
Earning Reward Points and Cashbacks can be a Trap
Don’t forget to earn Reward points and cashback when using a credit card, you might have read this in many places. You swipe your card and you earn points and then you shop some more to redeem those points. These are the marketing strategies to make you use your credit card more. However, even after knowing all these, we end up using more from our credit cards.
For example- You made a purchase of ₹ 4000 from your credit card and for that, you got 400 reward points which are valid for the next two months. Now you will think you have 400 points with you so why not shop more so that you can redeem those points. You don’t have any current requirements but to use those points you shopped again for 1000 bucks. So, do you think it was profitable? You might think that you saved ₹ 400 but you are ignoring the part that you spent ₹ 600 without any use.
So, it’s high time to get real and take it slow, shop only when there is a requirement not just to use the offers and points.
Credit cards are a great financial tool that can make your financial purchase much simplified. However, in order to avail maximum benefits, it is important to use your credit card properly and clear the outstanding amount on time. Remember doing this avoids interest from getting accumulated and thus can save a lot of money.