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Credit cards have become a part of our life. For anything and everything, we end up using credit cards because of the rewards it offers. Credit cards have directly or indirectly increased our spending. We first spend and regret it at the end of the month when we get our bill. The interest expenses on credit cards are no less. Even if one doesn’t want a credit card the banks don’t make it easier for us. Their continuous calls offering a pre-approved credit card makes us eager to get one. But is having a credit card bad? Will it only increase our expenses despite its offers? Well, that depends on how effectively and wisely you use the card. Here are few tips to use credit cards effectively and not suffer under the interest burden.
Don’t use too many cards
Using multiple credit cards makes it difficult to track the credit card spending and makes it even more difficult to pay off the dues. One might get tempted to have multiple cards having different credit limits. But with this temptation comes unreasonable spending and high interest expense. It is advised to limit your credit cards usage to 2. Not less and not more.
Use credit cards for cash back and discounts
When it comes to rewards, discounts and cash backs, hands down the clear winner is credit cards. They offer multiple discounts and cash backs on their usage. One can save a lot on their expenses by using credit cards. Having a credit card is not bad after all. It fact it is very beneficial if used in the right way. Banks earn higher profits through credit cards and they are willing to offer competitive rewards to increase the usage of credit cards. I say, take advantage of this and cut down on your expenses.
Pay the credit card bill during the interest free period
Pay the credit card balances in full within the interest free period. Interest-free period, also known as the grace period, is the time between the date of the credit card transaction and the due date of payment for the billing period. It usually varies between 20 to 60 days. During this period the transactions through credit card do not attract any interest, provided you pay the entire outstanding amount.
Don’t roll over credit card dues
Credit cards issuers allow the user to pay a minimum of 5% so that the late fee won’t be charged. However, the interest is charged on the outstanding amount. It is always advised to not roll over your credit card dues. This is because credit card charges high interest rates (36-48% per annum). Once the interest payment starts it gets difficult to pay off the dues. Pay the credit card dues in full every month within the interest free period.
Don’t spend excessively for the rewards
Always spend within the credit limit. Overspending due to the rewards it offers is pointless. Because at the end of the month we will have to pay for all the spending. So plan the expenses well in advance and spend within the credit limit. Credit limit is the maximum one can spend using the credit card without being charged a penalty. Keep track of your credit card spending and set reminders to pay off the credit card dues within the interest-free period.
Credit card EMI
If the credit cards bills are going out of hand you can convert the credit card payments into monthly EMIs. EMIs on credit cards works just like a personal loan or home loan EMI. You can pay off a certain amount of principal and interest every month and bring the balance to zero. The interest on the credit card EMI will be around 2% a month unlike the credit cards (with no EMI) which charge 3-4% a month. However, till the entire credit card dues aren’t cleared you cannot shop with the credit card again. At least you won’t increase your credit card debt due to this.
Build good credit score with the usage of credit cards
One can increase their credit score by using their credit cards. RBI has mandated that all banks have to check the CBIL score of e very loan and credit card application. CBIL is Credit Information Bureau (India) Limited and is the first credit information company is India. Having a high CBIL score means the individual is qualified for good loan deals.
One can use a credit card to increase this core. Pay off your balances on time, keep the oldest credit card accounts as a well maintained credit card account with timely payment of balances is a boon to CBIL score. Keep a track on credit card usage. Use only when it’s necessary as CBIL tracks the credit card utilization ratio. Increase the credit limit on your credit card and spend within the limit and manage the account well. High credit limit will boost the credit score.
Keep these tips in mind every time you use your credit card. Make the most of your credit card without falling into a debt trap. Use your card effectively. Happy spending!
Learn: What is Liquidity Trap?
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