10/10/2019 How to use your credit card wisely

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WEALTH

Everyday Money: Tips To Use Your Credit Card

Smartly
Credit cards will work to your advantage only if you use them wisely

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Entrepreneur Staff
ENTREPRENEUR STAFF

October 9, 2019 3 min read

Credit cards are frowned upon as easy credit that can imbalance your nances. Or worse, push
you into a debt trap. However, credit cards can be an effective tool in your nancial kit if used
responsibly.

It’s true that credit cards carry an interest rate component but the rewards and other perks that
they offer can help you save signi cantly, if used smartly. Here are some tips to help you make
the most of your credit card.

Save By Maximising Reward Points

Credit card companies offer rewards in the form of points cashback and vouchers on different
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10/10/2019 How to use your credit card wisely
Credit card companies offer rewards in the form of points, cashback and vouchers on different
purchases. For instance, basic cards give 1-2 reward points on every INR 125 spent, whereas

others give 0.5-1.5 per cent cashback on payment of utility bills or purchase of movie tickets and
on dining out. Such small savings can translate into a total saving of INR 1,000-1,500 per
month.

Co-branded cards give hefty rewards on purchases from select partners. However, such cards
should be bought only if you regularly shop from the merchants that have tied-up with those
cards. For instance, fuel cards give 4-5 reward points for every INR 150 purchase. Similarly,
purchase made from af liated shopping outlets can bag you extra reward points on every
purchase.  

Some premium cards come with guaranteed vouchers or privileges, such as access to airport
lounges. Take note of the rewards your card is offering and redeem them from time to time to
get the most out of your credit card. Accumulated reward points can be redeemed in cash or
kind.

Pay Bills on Time and In Full  

Though this is obvious, most credit card users carry forward the outstanding amount after
paying the minimum due. This practice can cost you dearly over time as credit card companies
impose heavy interest rate on outstanding amount. Credit card interest can balloon up to 40 per
cent in a year if you keep rolling over the balance amount.

Moreover, partial or non-payment of bills will also hamper your credit score. Outstanding
balance forwarded every month will show on your credit report that you are unable to pay our
bills in full, which could become a problem when you apply for a loan at a later date. Hence, pay
your credit card bills on time and in full every month to keep your credit score healthy and avoid
paying extra on interest rates.

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Related Read: Why Your Credit Score Matters

Take Note of Costs

We keep receiving sales calls regularly offering a ‘free’ credit card. But, there is no such thing as
a free card. Every credit card comes with a joining fee or an annual fee depending on the type of
card that you are signing up for. Those cards that come under the ‘free’ tag waive of joining and
annual fee only at the time of signing up but start charging annual fees from second year
onwards. Cash withdrawal through credit cards attracts an additional interest of 2-4 per cent on
every transaction, so avoid it at all costs.

Make sure to read the ner details before signing up for a card to ascertain the costs you will
have to bear from your pocket. Joining fee of credit cards is typically between INR 200-300
whereas annual fee, or service charge, ranges from INR 500 to INR 3,000. Some companies waive
off annual fee only if you make a certain amount of transactions within a given period.

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