Best Use of Your Credit Cards
If used wisely, credit cards offer a wide range of benefits. However, many have fallen into credit card debt in the recent past. A credit card is a great financial product and it is up to you to decide how to use it. Unfortunately, many reports and statistics prove that most of the credit cardholders handle their cards poorly. Before listing the smart ways to use your credit card, you should know about how you can end up falling into the credit card debt trap.
Reasons you can get into credit card debt
If you pay your bills on time every month, the chances of you falling into the debt trap are slim. However, there are many ways you can end up accumulating a huge debt on your credit card. Some of the reasons are:
- You are paying only the minimum due amount on the card and not the total outstanding balance. Until you pay the total due amount on the card, your credit card provider will charge interest on the revolving credit on a daily basis. This way, even if you pay the minimum due amount, you will be accumulating interest and the total due will keep increasing.
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- You are paying a high rate of interest on your credit card. If you applied for a credit card in a hurry and signed up to pay a high rate of interest, it is time to think if this is the ideal card for you.
- You have multiple EMI transactions on your credit card. Using your credit card to buy expensive things and converting the transaction into EMI is a common practice these days. If you have multiple EMI transactions, your monthly minimum due amount will be high. If you are unable to clear the total due amount, you will be caught in the debt loop for a long time.
- You withdrew cash using your credit card and are unable to pay off the total outstanding due on the card. Using your credit card for cash withdrawals is not recommended as it attracts high charges.
How to Use a Credit Card Wisely
Credit cards have the potential to push you into the debt trap. Having said that, it is possible to use your card wisely and not get into debt. Some of the smart ways to use a credit card are:
Prepare a budget and stick to it
If you do not have a personal budget for your credit card, you will end up swiping your card for most of your expenses and by the end of the billing cycle, you would have used your card for more than the amount you intended to. Therefore, a personal budget is very important. You can choose to use your card only to pay your utility bills or your dining expenses. This way you will be able to track your expenses easily and control it if need be.
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Always aim to clear the total outstanding due amount
While you may be allowed to pay just the minimum due amount and continue using your credit card, this is not an ideal practice. Always aim to clear the total outstanding balance on the card instead of just paying the minimum due amount. If you do not clear the total dues on your card in a billing cycle, finance charges will be levied on the revolving credit on a daily basis. You will end up paying a lot towards interest and will be unable to pay off the balance if you pay just the minimum due amount. Also, your credit card provider reserves the rights to increase your finance charges if you are not clearing the total due amount or have a high unpaid debt on your card.
Maximize your payments
If you are unable to pay the total due amount and are struggling to pay the minimum due amount, try making extra payments towards your credit card as and when you can. Use your savings, bonuses, or any incentives to clear your credit card dues. As credit card is a form of unsecured debt, it attracts high interest rate. Therefore, it is wise to pay off your credit card balances as soon as possible. If you are still unable to pay off your credit card balance, consider switching to a card with a lower interest rate. Again, make sure you have compared the fees and charges involved to switch to another card and close the previous card to avoid accumulating more debt.
Read your credit card statements
If you take the time to read and understand your credit card statement, you will be able to budget your expenses and understand your spending habits. Apart from that, you will also be able to check if you have been charged the right amount for the transactions you made using your card.
Choose a credit limit that suits you
It is very easy to get a high credit limit on your card. However, high credit limits also means high spending ability and the chances of you falling into credit card debt are very high. Therefore, be wise and realistic when you choose a credit limit. Both low and high credit utilization rate is not advisable.
Check the loyalty program offered by your card
Most credit cards have an excellent reward program. Check the features and benefits of your card and make use of it. If you are eligible to earn reward points on certain transactions, make sure you earn them and use the accumulated reward points. A few credit card providers allow you to convert your reward points into cash and adjust it against your credit card bill. If you have a fuel surcharge waiver on your card, make sure you avail the benefit and save on your fuel bills.
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The most important thing when it comes to using your credit card smartly is self-discipline. Before you charge anything on your credit card, ask yourself if you really must. If you are someone who cannot control the urge to use your credit card when you are out with your friends, consider leaving your card at home and use it only for certain expenses. Avoid saving your credit card details for online transactions. This will give you enough time to think before you use your card to make an online purchase in a hurry.