Credit Card is a double-edged sword, be careless and you can get a deep cut easily. Ineffective use of credit cards may prove disastrous while efficient use may prove profitable to the consumer.
From the bank’s point of view, credit cards are one of the best sources of income due to the hefty interest charges (around 36% to 40% per annum) on late payment of the outstanding balance. From the consumer point of view, credit cards could be a better way of financial planning if used wisely.
Credit Card Tips or Hacks
Balance transfer in credit card simply means transferring the amount you owe to one card to another card. In this way, you end up paying for the first card and owe the balance amount transferred on another card.
Many credit card companies offer 0% balance transfer for a few months. Using this way you can get yourself interest-free money or money at a lower interest rate for a few months by switching one card to another. But please be very careful to not exceed the promotional period as the interest rates are much higher after the promotional period ends.
Credit Utilization Ratio
One of the most important things to know about using credit cards is the impact of credit utilization ratio on the credit score. It is generally advisable to limit your credit utilization ratio under 30% to maintain a healthy credit score.
Credit Utilization Ratio = (Total outstanding on all credit cards / Total credit limit) X 100
If the credit card is often used and the credit limit is regularly exhausted, it will degrade the credit score. In this case, go for multiple cards to avoid degradation of the credit score. For example, if your monthly salary is ₹50,000, you may be offered a card with a credit limit of ₹1.50 lakhs, you should keep the utilization up to ₹50,000 to maintain the healthy credit score.
Use Right Credit Card at Right Time
When you are using multiple credit cards, you need to know the attached benefits of every card. To reap the maximum benefits you need to use the right card at the right time according to the benefits attached. For example, when you are shopping for groceries, you should use the card giving maximum cashback and discounts. Similarly, when you are going on a trip, use a card which helps you earning Air Miles or fetches you the Best Hotel Deals.
Improve Credit Score through Credit Card
Many of us have some time in the past goofed up on a personal loan, home loan, or vehicle loan and due to this the credit score or CIBIL score has got badly hit. The brunt of poor credit scores results in poor LTV (Loan to Value), high-interest rate, or in worst case denial of any loan in the future. The best way to improve the poor credit score is to pick the right card, make regulars spending through it, and pay it within the due date. Since a credit card is considered as a loan, timely payment enhances the credibility of the consumer which gradually boosts the credit score.
Never Carry forward the Outstanding
Carrying forward the outstanding amount by paying the minimum amount is the worst use of credit cards. The outstanding comes with the hefty interest rate and which amplifies your financial burden to a great extent. When you are using cards always make a priority to pay the total outstanding amount on or before the due date. Attach the bank account with the card to automatically pays the outstanding amount through ECS (Electronic Clearing System). Took personal loans or support from your dear ones but never carry forward the dues.
Free Credit Period of 50 Days
With the use of credit or debit card, you can literally go cashless and after demonetization the use of the cards have ramped-up. However, a credit card provides an added advantage of a free credit period of approx. 50 days over a debit card.
For example, if your credit card billing cycle date is 5th of the months, all the expenditure incurred before the 5th of the month will be billed on the 5th of the next month and you will get 20 days to pay the same. Let’s say your billing date is 5th of June than all the purchases made before 5th June will be billed on 5th June and you will need to pay the same by 25th June. So in total, you get 50 days of free credit. This way you can time your purchases and do major of the spending within a few days of the new billing cycle i.e. immediately after 5th June and defer payment to the next month.
Buy on EMI (Equated Monthly Installments)
There are instances when you need to buy something which is expensive but not budgeted. Using a debit card, in that case, might put you in a financial crunch. A credit card comes to aid by providing you the option of converting the purchases into EMI and repay the amount in easy monthly installments as per your convenience.
You can easily calculate the EMI amount by using many available online calculators and go for the best suited EMI plan. This will help to curate your monthly budget wisely and allow you to repay your loan within the stipulated time period.
Earning/Savings through Credit Card
Withdrawing cash through your credit card is an expensive deal. The interest rate is as high as 3% per month i.e. 36% per annum. There is another way around earning cash is saving while spending. If you choose the right card you can actually save on your regular expenditure. For example, some card gives 5% cashback every time your shop grocery, some would give cashback on movie tickets or utility bills. If you calculate and use the right card at right time, you can save around ₹1,500 to ₹2,000 monthly that’s near ₹18,000 to ₹24,000 yearly.
Another smarter way of earning through credit card is simply to budget the monthly expenses at the beginning, invest the budgeted money in the liquid mutual funds, spend through the credit card for the whole month. Pay the outstanding amount on the due date through redeeming the mutual fund.
Meeting Medical emergencies, important air travel, or any other unforeseen expenses which involves a hefty need of funds and cannot be deferred, through salary might tighten your budget. Even if you plan to break your FD or redeem the mutual funds, it will take at least 24-48 hours for the amount to be available for utilization. In this scenario, a credit card becomes a life-saver. You can even opt for EMI just by calling your card company soon after you make the payment.
Redeeming Reward Points
Every spending through credit card fetches you some reward points. Different cards offer different points on spending such as some card offers 1 point for every ₹100 spendings while some give 1 point for every ₹150 spending. Higher the reward point on lower spending is the card to go for. You can use the accumulated reward points either to repay the outstanding card dues or can redeem the points to buy some goods. Both ways are the added advantage of using a credit card over a debit card.