The Coronavirus pandemic has certainly created its own set of problems for different people. But most people must be thanking their stars that they have a credit card to enable them to shop during these tough times. However, it is also important not to go overboard on your credit card and end up with an unnecessarily steep burden when the pandemic is over. Here are the seven mantras that credit card users need to follow.
Consolidate your credit card holdings
Today, most banks are falling over each other to offer you credit cards. If your credit score is good, there are enough willing lenders. The last thing you want in these times is to worry about payment deadlines for multiple cards. Why should you pay 3.5% on a card when another card is willing to offer you a card at 2.5%? Most banks will be more than happy to consolidate another card, provide you have a good track record and you also have the limits. Don’t hold more than 2 credit cards in these volatile times.
Do not fall for the “Convert to EMI” bait
The moment you use your credit card for a large purchase, you will get calls from the credit card company to convert that into an EMI loan. There are no great benefits in that plan. But there are a number of hidden costs. For example, your credit limit is blocked to the extent of the full value of the purchase. Secondly, there will be a one-time processing charge and this will also entail an interest charge. You will end up paying more for no tangible gain.
Moratorium will not add much value for you
The RBI originally offered a 3-month moratorium till May 31stwhich has now been extended till August 31st. This EMI moratorium applies to your credit card outstanding too but then this is just a deferral or postponement of your dues. For the six months that you defer the payment, you still need to pay interest and the entire overdue amount has to be closed before the end of fiscal 2020-21. Another catch is that for fresh purchases, interest starts accruing immediately if you opt for moratorium. The moral of the story is not to opt for the moratorium if you have the cash flows to handle payouts. Moratorium can, at best, be used in an emergency.
Go through your credit card bill in detail each month
This should be a normal practice but more so during such a lockdown. Most banks are currently facing a financial crunch and you will suddenly find a number of debits like card charges, life insurance premiums, health premiums etc appear in your card bill. Make it a point to immediately take it up with the bank and specifically instruct not to debit anything other than the normal charges without due authorization from you. Don’t authorize any such debits over phone requests from the call centre.
Don’t go on a spending spree when shopping resumes
This is sometimes called vengeance shopping and credit card holders are more likely to go on a shopping spree once shops reopen. Right now, only groceries are allowed but other stores are likely to open soon. Don’t go overboard trying to make up for the lost shopping time during the lockdown. Remember, the tough economic conditions imposed by the pandemic are likely to last for some time; the lag effect will. It is best to conserve your cash and your spending power in these times.
For God’s sake, don’t lose your credit card
Of course, losing your credit card always has a security implication to it and hence you need to be cautious. But in the current pandemic, not losing your card assumes added significance. If you lose your card, it is likely to take much longer to get a replacement card and it may take longer than usual to reach you.Most banks are operating on skeletal staff and these processes take longer. Credit card misuse has increased sharply in the last few months. Hence you would be better off using your card carefully and judiciously.
Make the best of your accumulated points
Nowadays, most credit cards give you net/app access and you can check your reward points online. Make it a point to redeem these points before they expire. Reward points can be used for purchases and also for paying credit card dues (AMEX allows that). If you have a rewards repository available, use these points for essential expenses and save money.
The lockdown is the time to actually appreciate that you need to be judicious about credit card usage. It can be a powerful tool in these turbulent times. Just don’t go overboard!