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Ways to use a credit card wisely

In the current times, when credit cards offer us great versatility in terms of buy-now-pay-later plans, it is extremely critical that you use your credit card sensibly. Here are some measures to ensure that using credit cards works for you instead of against you.

Just because you have a line of credit, it clearly does not mean that you spend indiscriminately. It is very important to keep a careful record of what you spend and ensure that you aren’t making purchases that exceed your monthly income.

Credit card companies give you a time between 30 and 45 days from the day you make a transaction to the day you make the payment. However, it is requisite that you pay all outstanding dues on or before the stipulated date so as to not incur interest and penalties on late payments or defaulted payments. Defaulting on payments can also unfavorably affect your credit score.

Although your card statement will show you a minimum amount due every month, it is not advisable to keep paying as per that as you will be levied heavy interest on the unpaid amount which is still outstanding, a sum that will only compound month on month, possibly running you deeper into debt. If making the monthly payment is difficult, you could negotiate with your card issuing bank to offer you a lower monthly interest rate so that you can make larger payments whenever possible.

Certain products – especially electronic products come with EMI schemes. However, some brands do not allow such facility but encourage you to make the purchase using the credit card and later convert the purchase into an EMI. This essentially means that the company gets the money for the product and you still have the option to convert the purchase to an EMI and repay to the credit card companies. While this may sound attractive enough, many do not understand the repercussions of this transaction. The interest rate charged by the credit card company could be significantly higher than a personal loan itself! Work your math before taking such decisions.

When setting a credit limit, do not be lured into setting credit limits that are very high and that might cause you to spend far more than you can actually afford to.

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