How To Be A Disciplined Credit Card User
Post demonetisation, plastic money has gained enormous importance in our everyday life due to the convenience it offers against cash. Especially, Credit Cards offer added advantages such as instant credit, time for repayment after spending, reward points, etc. However, there are interest charges on the credit facility and if it is not used wisely, it could backfire.
Undisciplined use of Credit Cards can result in a negative Credit Score, thereby affecting your borrowing potential for future. Credit Cards levy high interest if the utilised amount is not paid back within the due date, often leading to a debt trap.
Here are some smart hacks to improve financial leverage, enjoy reward points/cashbacks, and save on interest accumulation.
Always clear your complete outstanding bill
While some Credit Card users wait for the due date to arrive to clear the bill, some keep the bill growing for months. Not paying the minimum amount before due date can lead to heavy penalty charges.
Clearing off the complete outstanding amount before the due date is a good practice as it won’t just save you from paying interest, but also improve your credit profile with time.
If you only pay the minimum due amount, you lose out on the interest-free credit period till the outstanding amount is cleared. Your outstanding balance would attract an interest of 1.5% to 3% per month. So, avoid making further transactions unless your outstanding bill is cleared.
Set your own credit limit
While a Credit Card company may have a certain credit limit, you must set your own limit based on your spending potential. You must not spend beyond your means. You can lower your credit limit by requesting the Credit Card company to do so. Once your income increases, you can reset the credit limit to suit your spending potential.
Set payment reminders and use the auto debit facility
Make sure that you pay your Credit Card bill before the due date arrives. And to do so, you could set a reminder on your phone or activate SMS alert. Usually, Credit Card companies send messages for due payments, but you could always set another reminder to avoid delay.
Another effective way to ensure timely repayment is by activating auto debit facility in the bank account. Banks offer the option of auto debit for the payment of minimum due and the complete outstanding amount.
Keep the credit utilisation ratio under control
Even if you are someone who pays off your dues on time, a high credit utilisation ratio could knock your score down. A high credit utilisation ratio indicates that you are a risky borrower.
Banks consider a credit utilisation ratio of around 30% of the total limit to be financially healthy. You could use more than one Credit Card to reduce the credit utilisation ratio as your spending would be distributed across multiple cards.
Do not use a Credit Card to withdraw cash
Credit Card companies do not offer interest-free credit period for cash withdrawal. Interest is levied from the time of withdrawal, so it’s best to avoid using Credit Cards for withdrawal purpose.
Check your bill regularly
It’s important to check your Credit Card bills regularly to ensure you are making the best use of the card. Credit Card charges, reward points, offers, discounts, etc. are all mentioned in the monthly statement. A careful analysis of your statement can help you weigh your benefits against the cost.
Credit Cards can prove to come handy if used smartly. A careful watch on spending, timely repayment and availing of offers can keep you on the edge.
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Marketing Specialist at Target River
7 年Quite informative and it is the need of the hour.
Founder-accountsfly.in, Virtual CFO, Regulatory Compliance Specialist, Financial Consultant, Mentor, Subject Matter Expert - Budgeting, Treasury ODI,FDI AML and Compliance matters.
7 年Correct article at correct time. Good. Another important factor is no credit card untill you learned managing your finances. Plastic money is not source of money. It's only alternate for very very short period. Follow this thumb rule always.
Operational Manager at Barclays
7 年There is too many people, who got trapped in the circle of credit. They think its free money that creditors let you spent and ending up with large credits, paying only the minimum amount, which can take many years to clear as the interests are variable so the total amount keep rising. There lies a huge responsibility on the credit providers to educate their customers about how their lives can get effected by missed/late payments, credit score and the meaning of it and affordability. I have spoken with so many people, who are not aware of half of those things or what they mean, which is wrong because in long term this effect their lives in so many ways. Yes you might say if you are not responsible enough you should not get credit card in a first place but it is a purpose of the lenders to make people understand the dangers of irresponsible use and the positives of using credit cards in the right way to serve a purpose to our advantage, such as building up a good credit score. It is a difficult topic but in my line of work, I believe the responsibility of making sure people understand, what they signing up for, lies with me.
Indian1 at Indian2america.com
7 年Add A Note To/From USA Experts But We Are Not Indigenous To Over Come Our Thought Because It Is Our Nature To Promote I Mean It should Be.Our Ideals Of Idealizes.
Certified Technologist (CTech) by IT Professionals NZ
7 年Thank you very much for a good read, Adhil! Quite useful for the young and first-time credit card holders like me! Definitely would share it with my friends and family. Always enjoy reading your informative articles on here!