First of all a few basic rules of using a credit card
The best thing about owning a credit card is that you can actually leverage them for your advantage. But, before indulging yourself in another purchase through your credit card this monsoon, there are a few basic rules that you need to abide by. If you cannot follow these rules, any purchase you make through your card is going to add significantly to your debt.
- Always make timely payments on your credit card. The late fees can be hefty and will negate any savings that you will make.
- Always make full payments. The interest rate on credit card is pretty high, as compared to the other types of credit. If you are not making full payments, the interest rate accrued will counteract against your savings. Never fall in the trap of ‘minimum payment’. It will mount up your credit card debt beyond your payment capability within no time.
- If you have an unused credit card, do not close it. It will increase your credit utilization ratio and hence lower your credit score.
- Do not portray yourself as credit hungry, by applying for a credit card frequently. It will negatively impact your credit score.
- Only purchase what you can afford with your monthly income.
- Don’t use your credit card to withdraw cash, as you will have to pay higher interest rate.
Once you are committed to the above rules of using a credit card, you can go ahead and use your card wisely to actually save some money this monsoon.
Use the credit card that gives you maximum cashback
Whatever you are buying this monsoon, whether it is groceries or apparels, use a credit card that gives you the maximum cashback. For instance, if you are getting a cashback of 5% on grocery purchase from your credit card, you are saving Rs 250 on a purchase of Rs 5,000. The higher cashback you can get the better. Find out if your credit card issuer has teamed up with your favourite store to provide you cashback offers for this monsoon and take advantage of this opportunity.
Beware of schemes that sound too good to be true
Everybody must have heard of schemes like convert your purchase in easy EMI with ‘0% interest rate’. These schemes are to draw the customers to purchase things that they cannot afford with their monthly salaries. However, the issuers always charge money in form of processing fees, service charge etc. RBI has placed a ban on offering any schemes that are not transparent. The key here is to make an informed decision.
Get a store credit card
If there is a store that you frequent, then it is worthwhile to apply for their credit card. Purchasing from these credit cards will earn you reward points, that can be accumulated. These reward points can then be used to save money on your next purchase. However, if they have a very small window of reward expiry, then it is better to not apply for the card.
The author is Co-Founder & Director, CreditVidya.