There are people who love to use credit cards and cannot imagine their life without it. These are such people who know how and where to use their credit cards for maximum benefits. On the other end of the spectrum, there are people who absolutely hate credit cards and never recommend it to others as they consider it one of the worst financial instruments. Such a contrast of opinion for credit cards is because of its usage. People who know how to use it find it the best option whereas people who are not so informed are likely to get trapped into its debt cycle that has enough potential to bring their finances spiralling downwards.
As per reports of RBI, there were more than 4.89 crore outstanding credit cards in the country at the end of May 2019. The total number of transactions recorded was 17.3 crores tanking up to a value of more than Rs. 61,000 crore in the month of May. With such huge acceptance and usage, credit cards have started making inroads in the Indian economy quite significantly. However, you need to be a bit cautious while using credit cards to avoid any unwanted transactions. Let us discuss some of the most important points that will help you to maximize benefits on your credit card without incurring huge charges.
Pay your bills on time, every month
The first and foremost thing that you should focus on after getting a credit card issued is to pay the credit card bill on time. A credit card statement is generated at the end of the month that contains all your spendings and credits during the calendar month.
The due date for paying the dues is mentioned on the statement itself. Make sure you make the payment on time every month. Paying dues on or before the due date ensures you do not have to pay additional fees and charges on transactions carried out during the past month.
In case you miss the due date, interest is levied on your transactions and you have to pay an interest of up to 3% per month on your transactions. To avoid such instances, you can give standing instructions to the bank to deduct the credit card due amount directly from the bank account on or before the due date.
Paying off your credit card dues on time also helps in improving your credit score. If you do not miss on your credit card payments, your credit score will get a boost which, in turn, will make it easier for you to get loans approved in future.
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Avoid paying only the minimum amount due every month
When your credit card bill is generated, you are given a timeframe of 18 to 20 days to clear the dues. It is recommended that you pay the total amount due on your credit card every month within this period. If it is difficult for you to repay the complete amount in a particular month, you can pay the minimum amount due and prevent from the late fee.
Payment of the minimum amount due ensures that you will not be charged any late fee. However, do not make it a habit to pay only the minimum amount due on your credit card. In case the total amount due is not paid and only the minimum amount due is cleared, the bank will levy interest on the remaining amount at a rate as high as 3% per month.
Paying only the minimum amount due on your credit card is one of the most expensive ways to clear dues. Also, if you fail to clear your minimum amount dues for more than 30 days, the credit card issuer reports it to credit bureaus which, in turn, downgrade your credit score.
Know all the benefits on your credit card
Your credit card comes with a number of benefits. It is a fact that most of the people are not aware of all the benefits available on their credit cards. Due to this, they miss out on a number of offers and discounts and end up paying more which could have been saved otherwise.
There are cards that offer special benefits on travel, flight bookings, etc. whereas other cards offer cashbacks on purchasing both online and offline. There are also some cards that offer a discount on fuel purchases and there are some credit cards that offer benefit on fine dining.
Airport lounge access and free personal accident insurance are some of the benefits that not many people know about and thus are rarely used. When you wait for your flight on an airport, you can use the free airport lounge access to unwind and rest.
You should go through your credit card brochure in detail and find out all benefits offered on your credit card and utilize it when required in future. You can also contact the credit card customer care to know about the benefits on your credit card.
Use cards as per discounts and offers
If you have multiple credit cards, you can use them judiciously as per the benefits available on your credit card. Travel and fuel cards can be used for booking flight tickets, stay in hotel and fuel purchases. Cashback and reward cards can be used for buying groceries and miscellaneous shopping.
Some outlets tie-up with various banks to provide offers and discounts when the customer uses the bank’s credit card. Check for such offers available on your credit card at the time of billing.
Some stores offer instant discounts ranging from 5 to 30% whereas some offer cashback or rewards on purchasing products using a specific credit card.
It is advisable to use a credit card as per the available offer wherever you go. Using your travel credit card for booking movie tickets may not be as useful and rewarding as the entertainment credit card that provides the “Buy 1 Get 1 Free” offer.
Redeem Reward Points and Air Miles when required
Almost all credit cards come with Rewards Programme under which a cardholder earns rewards on making transactions using the credit card. When a specific minimum amount of Reward Points is accumulated in the account, the cardholder can redeem it for rewards, merchandises and coupons. A nominal fee may be levied for availing the rewards.
Travel credit cards come with Air Mile Programmes under which Airmiles can be earned on making purchases using the credit card. These air miles can be redeemed and used to buy flights tickets. One can save a lot by booking all flight tickets using the same credit card and eventually getting a free flight ticket thus saving on the travel expenditure.
There are credit cards that offer cashbacks on making purchases using the credit cards on specific portals or outlets. A number of e-commerce platforms have tied up with different banks to provide amazing discounts to cardholders. Most platforms provide facilities such as “No Cost EMI” under which the EMI interest amount is borne by the e-commerce platform. Using the particular credit card can help in saving that extra amount which could have been spent in paying the EMI interest amount.
Upgrade/Downgrade the credit card as per your requirement
India is still new for credit cards and credit cards are still a new instrument for the majority of Indians. Many people apply for credit cards without much research and end up getting a card that does not meet their requirements. These cards provide either lesser benefits than required or provide many such benefits that are of no use for the cardholder at present.
In case you have fewer benefits on your card, you will end up paying more for what could have been saved had the facility been provided with the card. For example, if you have a card that offers 2 free lounge accesses per quarter but you need more of it as you travel a lot, you will end up paying for the lounge access if you need more access to the airport lounge. In such cases, it is recommended to upgrade your card as per your requirements.
There may be instances where you use your credit card for grocery purchases and fuel only. It is not wise to have a credit card that provides multiple lounge accesses, dining benefits and other premium services as all services have some fee and you are the one who has to pay for this in the form of annual or renewal fee of the premium credit card. It is thus advisable to downgrade your credit card to the one with zero annual fees or the one in which your annual fee is reversed on making transactions of a specific amount.
Close the unnecessary credit card account to prevent damage to your credit score
Having multiple credit cards is a good thing as it gives you the flexibility to use a specific card to earn maximum benefits. It also helps in maintaining a very low credit utilization ratio. However, it may not be advisable in all cases. Having a number of credit cards can have its own cons.
Each and every card has its own statement period and you have to pay an annual fee for most of the cards. In case you have a number of cards and all cards have an annual fee, you may have to pay a huge amount in annual fee itself. If not required, you can surrender these cards and close additional credit card accounts.
You should first analyse whether the cards that you have are really required and if paying for the annual fee of a credit card is worth the privileges you get against it.
There may be instances when you do not use a specific credit card and you forget to pay its annual fee before the due date. The amount will surge significantly with time and your credit score will take a deep plunge due to non-payment of the fees.
It is thus recommended to keep only those credit cards which you actually use and avail benefits of. It is never mindful to pay for the benefits you do not avail or that are of no use to you.
Using your credit card wisely will help you get the maximum out of your card. Always look out for offers and discounts, if available, while making purchases either online or offline. Paying your bills on time will help you save more as the interest offered on personal loans also depend on your credit score which improves when you pay your bill on time. When you follow all the pointers and implement them in your financial life, you will end up availing maximum benefits on your credit card.