5 tips and tricks to use your credit cards smartly

Credit cards have often been reviled as a one-way ticket to debt. However, this is a little unfair because getting into debt is, quite often, your own conscious decision which stems from overspending.

Most credit cards these days offer you the power of plastic money along with a host of other advantages to boot. Convenience, simplicity, rewards points, and bonus points are some of the main advantages of having a credit card.

Nonetheless, the question still remains: how to make the most of your credit card?

Here are 5 ideas that could help you use your credit smartly and prudently.

• Fit the card into your core necessity

  Credit cards are mostly acquired to fulfil a core necessity and your card must primarily be used only to address that. For example, households need to spend adequately on shopping for groceries and daily essentials. There are credit cards that give bonuses and discounts on shopping for such utilities. To consider another example, if you need to drive your car for long distances, then it would cost you a lot of fuel money. Considering the high fuel prices these days, the last thing you want to pay is the additional transaction charge of 2.5% while making a card payment. In this case, you must opt for a co-branded petro card where the charges are automatically credited back to your account. Of course, if you are an avid online shopper, then there are dedicated cards for online shopping which give you extra bonus points. Identify your need and then get a credit card accordingly.

• Avoid withdrawing cash on your credit card

  This is the cardinal mistake that most people make. While your credit card does offer you the facility of withdrawing cash, you must resort to this only in absolute emergencies. Unbeknownst to most, when you withdraw cash from your credit card at the ATM or at a branch, there is a steep service charge of 3-4% on the value of the withdrawal. However, such transactions are subject to a minimum charge of anywhere between Rs200-1,000. This is a huge cost, not to mention the additional interest cost and GST charges on the withdrawal. It is not worth paying so much for cash and hence, this option is a strict no-no™.

• Encash your reward points on time

  As a credit card holder, you often get messages and emails from your bank about accumulated reward points on your credit. Remember, these credit points have an expiry date and if not utilized within a stipulated date, they expire and become worthless. You can, and should, redeem these points either online or at select outlets. This is one of the primary benefits of getting a credit card so make the best of it and ensure that you monetize your points on time.

• Keep a tab on all invites you get as a premium cardholder

  Credit card companies often like to pamper their premium cardholders. For example, banks like Citi, ICICI, and HDFC have special get-together functions and concerts for their premium coral™ and signature™ cardholders. As a credit card holder, this is a great opportunity to network with like-minded individuals and expand your social base. Use these opportunities to network with the right people at a more informal forum. This is an additional benefit that is only available in the very premium categories and sometimes includes access to premium airport lounges. Try and make the best of such benefits.

• Use your credit card as your monthly budget machine

  This is a slightly debatable issue. Should you really use your credit cards for all your household purchases? Actually, there are some distinct advantages of adopting this strategy. For example, it is possible to pay for all your household needs through a credit card today. You can then pay the outstanding on your credit card each month. What™s more is that apart from the month-long cost-free credit, you get reward points and bonus points for using the card, get the convenience of having all your transactions in one place, as well as be able to the download the analytics of your monthly expenses from the credit card website.

• Time Your Purchases

  Using Credit Card wisely is essential for maximizing the interest-free period. Understanding the billing cycle and being mindful of the bill generation date are key aspects of using credit card wisely. By strategically timing purchases, especially just after the Credit Card bill is generated, you can potentially enjoy up to 45 interest-free days or more. This knowledge empowers you to manage expenses efficiently and make the best use of credit card.

• Pay Credit Card Bill on Time

  Wondering, ‘ How to use credit card wisely?’ Timely settlement of your credit card bill is important, not just to have a favourable credit score but also to avoid potential financial penalties. Late payments can have penalties, interest charges, and have an adverse impact on your credit score, potentially creating obstacles in obtaining approvals for future loans. Staying diligent in meeting payment deadlines is fundamental to financial responsibility, playing a vital role in sustaining a positive credit history and improving the prospects of successful personal loan approvals in the future. Maintaining a record of consistent on-time payments is essential for using credit card wisely, bringing about advantageous outcomes such as the potential for increased spending limits and access to attractive loan offers. A proactive approach, like setting up monthly reminders or automated payments, is a good strategy to guarantee that you never miss a due date, thereby upholding financial discipline and stability in your overall financial management.

• Do Not Exhaust your Credit Limit

  Want to know how to wisely use credit card? Utilizing your entire credit limit can adversely affect your credit score, underscoring the importance of recognizing the distinction between your credit limit and spending limit. Going beyond your credit limit might result in over-limit fees and damage to your credit score. Upholding discipline and resisting the impulse to max out your credit limit is key to maintaining a positive credit history and overall financial health.

• Use Credit Card at Trusted Merchants

  It's crucial to be cautious when sharing card details with merchants. Advanced security measures, such as encrypted and authenticated transactions, are essential for transmitting sensitive information. Digital merchants must also have strict policies governing payment confidentiality, including data storage, access controls, and unauthorized disclosure measures. A commitment to safeguarding financial information includes secure transmission and comprehensive data protection practices. Digital merchants should adhere to industry standards and compliance requirements to ensure data security. By following these precautions, you contribute to creating a secure environment for financial transactions, mitigating risks of fraud and unauthorized access to sensitive information.

• Understand Your Credit Card Terms

  Having a proper understanding of the terms and conditions is a must for using credit card wisely. Given the potential for costs associated with your credit card to accumulate swiftly, it becomes crucial to stay informed about the specific fees involved. This proactive approach guarantees that you are using credit card wisely. In the event of any uncertainties or doubts, reaching out to the credit card issuer for clarification ensures the wise use of credit card. This proactive engagement promotes a sense of financial responsibility and contributes to making informed credit-related decisions.

This brings us to the one last and possibly the most widely asked question. Should you pay the full outstanding on your credit card each month or should you rollover paying just the 5% minimum due?

The best option, apart from paying your bills in full and in time, is to keep your credit card outstanding at less than 30% of your card limit. This will ensure a good credit rating and help improve your CIBIL score. Moreover, you will also benefit from the lesser interest amount charged on the remaining bill. Don™t fall into the 5% rollover trap because eventually, the costs would be too high compared to the benefits. Pay as much as you can each month.

Remember, credit card companies are interested in individuals who take credit but are also prompt with payments because that is how these lenders make money at the end of the day. Just how much you wish to pay over and above the minimum amount when that credit card statement comes due at the end of the month is entirely at your discretion.