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How to use credit cards smartly?


Most of us would agree that a Credit Card can be a useful tool if used wisely and with caution. For example, if you're short on cash during a financial emergency, you can use your Credit Card to make purchases or pay expenses, then pay your bills using the monthly Credit Card repayment schedule. If this is not enough, credit cards also come with a variety of discounts and rewards that can help you save money and gain access to lifestyle benefits.


Also, most credit card companies give customers 30 days to pay before interest is charged on the outstanding balance, though interest may begin accruing immediately in some cases. And Credit card interest rates are notoriously high, and they are a major source of revenue for credit card companies. Consumers who pay their balance in full each month can avoid paying it.These cards are rewarding, but you can only get the most out of them if you use them wisely. Do you know how to make the most of your credit card? If not, let us now discuss the same in detail -


1. Be disciplined with your credit behaviour –

 Because credit cards have such a long interest-free period, there may be a tendency to overspend the cash. And therefore, here are two things to keep in mind if you find yourself overspending on your credit card. First of all, credit cards for the first-time users usually have a low credit limit, and if you frequently exceed your credit limit or even come close to it, your credit score may suffer. Ideally, one must limit their monthly spending between 30% and 40% of their credit card limit. Second, if you spend more than you can afford and don't pay your credit card bill on time, you’ll hit with high interest rates ranging from 25% to 45% p.a., that too along with late payment fees.To add in, the interest -free period is also triggered if dues are not paid on time. Also, your credit score will be severely impacted, lowering your creditworthiness and decreasing your chances of obtaining another card or loan in the future.


2. Use cashback rewards and special offers –

 The variety of offers available on a credit card is one of its benefits. When using these cards, one can get reward points, cashback, and vouchers, among other things. This allows you to save money and cut down on your overall spending.


3. Refrain from withdrawing cash –

 When faced with a financial emergency, it is recommended that you take out a personal loan or a credit card loan rather than withdrawing cash from your credit card. This is due to the hefty fees associated with cash withdrawals made with a credit card. Starting from the date of transaction, card providers charge a high interest rate of up to 50 percent per annum on the withdrawn amount. You'll also have to pay cash withdrawal fees of up to 3.5 percent of the amount withdrawn.And still, if you have no other option & have withdrawn the cash, you must repay the withdrawn amount in full as soon as possible to avoid incurring any further additional interest charges.


4. Don’t pay just the minimum amount due –

 When it comes to credit cards, many people make the mistake of only paying the minimum amount due rather than the full balance owed. If you pay only the minimum amount due, you will avoid the late payment fee, but the balance carried forward will continue to accrue interest. For Example – Mr. Yash spent a total amount of Rs. 50,000 on household & personal expenses in the month of November 2021 & the minimum amount due at the end of the month is Rs. 3,250. But at the end of the month, he could not make up for the whole of Rs. 50,000 & to avoid the penalty on the same he paid the minimum amount due on the credit card i.e., Rs. 3,250. But when he paid the minimum amount due, he will avoid the late payment fee, but the balance carried forward will continue to accrue interest.


Another good solution for this is that you can convert the entire bill or unpaid dues into EMIs if you are in a cash crunch and find it difficult to repay the entire amount due. The interest paid on EMI transactions is lower than the finance charges, so you'll be able to save money on interest.


5. Examine your credit card bills –

Your credit card statement is a useful tool for getting a detailed picture of your credit card usage. Return to your statement to review your transaction history and identify areas where you can cut back on your spending. It's also a good idea to compare your transactions to your own expense log to ensure that no expense slips through the cracks.


6. To build a good credit history –

Card issuers often reward responsible credit card users with points and rewards, and using credit responsibly helps to build and maintain a strong credit score when the bills of the same are paid on time.

 Also because it takes time to build a credit history. Depending on how well and frequently you use and manage credit, it could take six months or even a year. It takes even more time to build a strong credit score. If you want to achieve and maintain an excellent credit score, just keep working toward it.


7. Don't give out your credit card information to anyone –

This is a very basic point, but it is critical. We may believe that sharing information over the phone with a stranger or someone who can assist us in resolving a technical issue is acceptable. However, it is important to understand, that even if you share any incomplete details with that person, he can misuse your card & the amount will be deducted from your card limit. This can be possible with a debit card as well but since the withdrawal amount is limited to the amount in your bank account it may be potentially safe than the credit card.For Example – Mr. Rohit shared all of his card information with a stranger over the phone, except the CVV, because he believed my card would not be misused because the CVV is required to complete any online transaction. However, he overlooked the fact that some international websites also process transactions without the CVV number.


8. Choose the right credit card –

Getting a credit card that fits your spending and lifestyle is the most important aspect of smart credit card use.

Since, there are a variety of credit cards available that cater to various types of spenders, such as frequent shoppers, travellers, and so on. Let’s say, if you shop online frequently, look for credit cards that offer good online shopping benefits, such as cashback. If you enjoy travelling, look for cards that provide free air miles, access to airport lounges, and hotel vouchers, among other benefits.For this, applying for a credit card with the bank where your salary is deposited is one of the simplest ways to obtain your first credit card. After a few months of salary credit, most banks issue entry-level credit cards to young earners. In terms of rewards and benefits, annual fees, and other factors, you should compare the credit card being offered to other entry-level credit cards on the market.


9. Use your card only at trusted stores –

If you're going to use your credit card to make an online purchase or buy something from a local store, make sure the retailer is one you can trust. Your credit card identity theft risk will be reduced as a result of this.


10. Select a Sensible Credit Limit –

A credit card has a credit limit that varies from one provider to the next. Your credit limit should be determined by your ability to repay. If your credit card has a higher credit limit than you need, you can contact your credit card provider to have it reduced & vice versa.


With that, we can also have a look at some of the tips that may be useful when using these cards –

·         Do not share your One-time credit card password with anyone.

·         Make sure the card is swiped on a machine which is issued by authorized banks & not some machines which looks suspicious.

·         While making any offline transaction like on petrol pumps, hostels etc., make sure its swiped in front of you as far as possible.


Conclusion –

Overall, credit card can be a valuable financial tool that can assist you with day-to-day expenses & Inefficient or incorrect use can result in a financial imbalance, which can lead to outstanding debts.

To sum this up it is truly said that; Being in control of your finances is a great stress reliever & therefore one must manage them smartly.