- Personal Finance
Use your credit card judiciously
Every one has a credit card. In fact, some have couple of credit cards. Most business establishments honor credit cards in lieu of cash payments. Be it shopping malls, petrol stations, hotels or restaurants!
Credit cards should be used judiciously. Else it will lurk you to danger of debt trap. Here are some useful tips to avoid the danger of falling into the debt trap. [Have you read my hub on credit card score?]
Here are four rules to better manage your credit card and reap benefits.:
- Rule 1: Read between the lines!
- Rule 2: Pay your dues by payment due date
- Rule 3: Avoid EMI trap
- Rule 4: Credit Card is NOT cash card!
Rule 1: Read between the lines!
First thing first! You need to read the term and conditions of the credit card that you are applying. The exercise is bit arduous, but it is worth while to go through the fine prints of getting a credit card. This will save you from any rude surprises later. I would choose credit card where in you don’t have to pay any annual fee.
Rule 2: Pay your dues by payment due date
Rather very important rule is you MUST follow is to pay your credit card dues on time. Remember your pay-by-date for each of your credit card. If you are not able to pay the full amount, then you must at least the minimum payment due before the payment due date. Minimum payment due can be from 5% to 20% of your total due amount. If you forget to pay any amount by payment due date, the credit card issuer impose ridiculously high penalty. This is apart from very high rate of interest for the total balance.Come what may be, make it strict rule to pay up the whole amount in total before the payment due date. With online payments, it is just very easy to pay up your bills. Use auto-debit facilities if available with your saving or salary account with your banker.
Rule 3: Avoid EMI trap
These days, the bankers encourage you to pay your credit card purchases in installments – Equated Monthly Installments (EMI). Converting your credit card purchases into small EMI of 3, 6, or even 12 months are easier and done over phone without any paper work. Don’t fall for this trap. The rate of interest for such EMIs is very, very high. It can be as high as 42% on annualized rate.
Rule 4: Credit Card is NOT cash card!
Don’t use your credit card as cash card. The bankers allow you to draw cash using your credit card. But never ever use your credit card to draw cash from their ATM. I erased ATM PIN number of my credit card from my memory. As soon as you draw your CASH from ATM using your credit card, a penalty of 2% as processing fee is levied on you. Besides, this amount will remain UNPAID until you settle WHOLE credit amount.
Cash you draw will incur an interest rate can be higher than normal interest rate of credit card purchases. That is very high rate of interest for getting some cash. Other personal loans come cheaper from the same bank. When in need of cash, better to go for the personal loan than opting to draw cash from credit card.
Use your credit card intelligently to reap the benefits that comes with having credit card. There are some interest-free days before you can settle your credit card bills. Interest-free days can be up to 50-days. Besides, most credit cards come with reward points. Accumulate points and redeem them for purchases on selected items or dine at selected restaurants - or even buy some free gasoline!
Credit Card is a cashless convenience. Keep it that way.