- Personal Finance
HOW TO USE A CREDIT CARD TO YOUR ADVANTAGE
Having Multiple Credit Cards In Your Wallet Is In
How To Get The Most Out Of Your CREDIT CARD
Procurement of a credit card is easy, spending easier and if not managed properly can turn into continuously amounting debts. Credit cards are easily available and people love flashing them when confronted with a bill payment. Some of them sport several credit cards in their wallet and pay for just about everything by credit card. Not all are comfortable with this mode of payment either, as they are aware of the perils of huge debt accumulation. Such people opt for a debit card instead or pay by cash. So, how does one utilize a credit card and make the most of it. How does one keep from getting into debts that become huge over time ?
Credit card companies offer credit card with a purpose! You get free credit for the stipulated period and they charge you an interest on the balance to be paid if you do not make the full payment due. This may be as high as 36 % on the outstanding amount. This is certainly the highest form of credit.
Credit cards are an excellent way to have your cake and eat it too! Yes, you heard me right! Once you shop with your credit card, you are to make a payment towards that within the stipulated time-most banks give you around 50 days of free credit period. Some banks offer even more time. This means you can make your payment on or before the last date given. Until then, you are free to park that amount in your Savings Bank Account and continue to earn interest on a daily basis, or make a Fixed Deposit for that amount for the 50 day period, if it is a large enough amount. Financial geeks the world over use this tempting feature to earn interest on money already spent. The bank from which you procured the credit card is thus giving you free credit for that period.
Having a Credit card is Beneficial-The Convenience Factor!
- A credit card allows you to shop and make payments without worrying too much about the money you have available on your person or your account. Only beware of your credit card limit and make sure you are well within that before you make any payment.
- You do not have to carry wads of cash always while shopping which can be cumbersome as well as open to pickpockets.
- Travel and hotel reservations are often a convenience with a credit card and some companies offer valuable points when using these. Several travel websites insist you make a credit card payment.
- You earn interest on the money already spent until the next credit card payment due date.
- Debit cards offer the same convenience but while shopping, you will be exposing your entire savings account.
- You get a credit card statement every month that holds you accountable for your spending. You get a clear picture of your spending habits. Making necessary changes involving spending and saving will put you in good financial shape.
- Almost all credit card companies offer you a 1 % cash back reward. Some offer this reward packaged as hotel discounts, airline miles, points, etc. Opt for the cash back so as to be rid of the headaches of adding up points. Find a company that offers you a 1.25 % -1.5 % cash back. Do not go for those promoting a 5 % cash back for they will eventually show only 1 %.
- Having a credit card can be beneficial when the company pays you even when you are not spending. Examples being offer of a free companion airline ticket, a point (1 cent) for every mile you drive in your car.
- Your credit card allows you to withdraw money from ATM's located in different areas of any city.
How Does One Accumulate Huge Debts Because Of A Credit Card or Cards?
You have heard of so many falling into the debt trap with their credit cards, including college students. And it takes them years to get out of it if they ever will. How does that happen? It is important for you to understand this so as not to make that same mistake. Nor should you avoid credit cards like the plague. Managing credit card or cards that you have will give you a certain amount of financial freedom.
Credit card companies normally offer you two ways to pay your dues. Every month your credit card statement reflects the total amount due as well as the minimum amount payable by you by a certain date. If you opt to pay the full amount on or before the due date, you are safe. You do not pay any interest except what you actually spent while shopping. Whereas if you opt for the second, wherein you pay only the minimum amount due, you have availed yourself of the revolving credit facility. This means that if you have spent $100 while shopping, your credit card outstanding will show $ 100, with the option of paying in full or 10% of it, say $10 as the minimum. Before the due date of course! If you opt to pay only the $10, you still have a credit of $ 90 with the credit card company. Which is to be paid later, but this will now attract an interest of 36% or more depending on the company rules. So, your next month's credit card statement will reflect your that month's outstanding plus, the previous month's outstanding of $ 90 plus the 36 % interest on the $ 90. So it is again upto you to choose between paying up the entire amount due or once again opt to make the partial payment. Snowballing effect and your outstanding just continues to grow, until you cannot manage it anymore. This is how most fall into the debt trap and discourage others from owning a credit card.
Hot Tips :
- Before procuring yourself a credit card or cards, make sure you read the fine print on the application form. Know the rules of the particular company. If you choose to have more than one card from a different company, know their rules too.
- Know your credit worthiness. Banks or the credit card companies will conduct their own research to make sure you are credit worthy. But it is absolutely essential for you to know how much money you can afford to set aside out of your salary to pay every month towards your credit card bill payment. Even multiple cards! And stick to this budget while shopping!
- Be responsible with your spending. Do not go overboard just because you can pay by credit card. College Students and several adults use their credit card for everything and go on shopping excessively in the very first month or two of procuring. Some do not stop and continue.
- Learn to prepare a shopping list every month on payday and stick with it. Unforeseen expenses need to be accommodated as well.
- Knowledge of your take-home salary versus monthly expenditure will give you a definite picture of how much you can safely pay through your credit card each month.
- And never think that you can spend every penny of your credit card limit unless you can afford to pay in full when the credit card statement appears. Before the due date.
My Opinion : Credit cards are a boon not a bane! If you know how to manage them!
What's yours? Use the comments section below to air your views.
- Credit Cards For Students-Helpful Tips For Students Using A Credit Card
College students are often seen spending too much at restaurants, movies, shopping arcades, etc. Some pay cash, others by wielding a credit card. Some parents opt to give their children an add-on card for...