August 02 2019
In the last 25 years credit cards have become very popular among millennials due to the ease of ‘buy now and pay later’ facility they offer. But then credit card also let us splurge on otherwise avoidable expenses. With credit card in a pocket it is difficult to control temptation to buy an expensive item. First thought is always that next month I will control my expenses to accommodate this purchase. Alas! That next month never happens.
Though Credit Card gives us an extra purchasing power, it is essentially a loan only which has to be paid back. Reckless use of credit card let the user caught into a roll-over debt cycle whose interest cost can be exorbitant at3-4% per month(40-50% per annum).Besides high interest, there are many other fees and charges like late payment fee, over-limit fee, cash advance fee which makes the use of credit card even more expensive.
If used responsibly, credit card is a great financial tool. It is a great aid while travelling, handling emergencies or unplanned expenses.
Here are some tips to make the best use of your credit card by using it judiciously and keeping the monthly bills low-
1) Avoid having too many credit cards. One or maximum two cards are enough.
2) If you have more than one credit card, keep only one card which has a lower limit,in your wallet. Others can be kept away and shall be used only to meet emergencies.
3) Keep the credit limits of your cards low. Higher the limit, most likely are the chances of its full usage every month.
4) Register only one card,that too with a lower limit, for online shopping transactions.
5) Do not get lured by earning more reward points, as it ends up in overspending.
6) Instead of going for EMI facility on card, avail zero cost EMI facility offered on various products by merchants, both online and offline.
7) Strictly avoid converting entire credit card bill amount into EMI.
8) Always make the payment at least 7 days in advance before the due date to avoid late clearing of cheques.
9) Do not use more than 50% of your credit limit, to keep room for emergency requirements. This also helps to keep your CIBIL score healthy.
Conclusion:
Sensible use of credit card has its merits but its impulsive use can lead one into financial crisis. One should be careful in spending on a credit card and most importantly spend only as much as one can afford.
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Happy Investing!
Tulika Agarwal
Co-Founder, Investguru