Credit cards have gained immense popularity among the millennial population especially because of the ease of spending they offer. People, nowadays, have different credit cards in their wallet for different kinds of expenses. While credit cards allow people to make their dream purchases easily, records show that the figures of delayed and defaulted credit card bills have also increased in recent times. Credit cards are perfect for those who make disciplined use of their credit but those who fail at managing bills are more likely to be trapped under a pile of debt.
It is extremely important to be responsible towards your credit card bills and pay them on time in order to avoid the spiral of debt. Here we will talk about a few ways in which you can manage your credit card expenses and make smart use of your credit.
Check Your Credit Card Statement Regularly
Credit card statements are not only meant for communicating the EMI that you have to pay. It contains complete details of the transactions made by you in the given billing cycle. Every credit card issuer sends monthly statements on the registered email address of its users. For example, if you have HDFC credit card, you will receive statement containing all the debit and credit transaction details for the given period, reward points earned and redeemed, opening and closing balance, etc. You should check through the statement and if you cannot recognise a transaction, raise a query with your bank. If possible, match your transaction receipts with those mentioned in your monthly statement.
Pay off in Full Each Month
In order to avoid paying any extra amount to your bank, you must pay off your dues in full every month. If you fail to pay in full, you will be charged interest on the unpaid amount. Also, when unpaid bills are lying in your account, the next transaction you make is not eligible for the interest-free period. So, in such cases, you are not only paying interest on the outstanding balance but also on the new expenses that you incur on your credit card. This is one of the most common mistakes that cardholders make. The easiest way to avoid this is to set auto debit instruction on your savings or current account to make payment towards your statement every month.
Avoid the Minimum Amount Trap
Most of the banks allow their cardholders to pay the minimum amount due if they cannot make payment towards the entire outstanding amount lying in their statement. While payment of minimum amount will save you from paying that late payment penalty, interest will still be charged on the remaining balance in your account. If you keep paying only the minimum amount for several months, you will end up paying way more than the total outstanding amount in the form of interest. Again, the interest-free period for new transactions will be null and void, thus adding to your financial miseries.
For example, the total outstanding in your statement is Rs 4,000 but you could only manage to pay Rs 2,000. In this case, you would have to pay interest on Rs 2,000 for as long as you donâ€™t pay it in full. Moreover, if you spend Rs 3,000 more from your available credit limit, you would have to pay interest on this amount from the beginning.
Understand How Interest on Credit Card Works
Banks provide you certain interest free period; payments when delayed beyond this period entail some interest cost which is calculated on daily basis. You have to pay interest on the outstanding balance for as many days as it stays in your statement. Banks usually communicate the Annual Percentage Rate (APR) on the credit card. When calculating the interest amount manually, you need to convert the APR into daily interest rate and multiply it by the number of days the amount was lying in your account.
Keep a Sensible Credit Limit
It is in your best interest to maintain a sensible credit limit on your card. Keeping up to 30% of your credit limit free is a guideline most of the financial experts support. Exhausting your credit limit also has a direct negative impact on your credit score. Your credit card issuer will encourage you to increase the limit on your credit card or upgrade your basic card to a premium one. But you shouldnâ€™t fall prey to these schemes. Upgrade your credit limit only when you think you actually need it and when you are sure about managing the additional EMIs. In fact, those who are tempted to spend all their credit should go for limit reduction unless they are sure of making timely payments.
Avoid Cash Advances, Cheque and Draft Facility
Cash advances on your credit card may save your time and help during emergencies but they come with extra fees and charges. Drawing cheques and drafts on your card, buying foreign currency, etc., also entail extra charges. Moreover, these facilities also donâ€™t come with the interest-free clause. So you must make use of these features only when there is no other alternative left.
Donâ€™t Use Credit Cards for Trivial Expenses
It is important to understand that no matter how credit card companies promote their products, it is in fact a loan which you have to pay back to the bank with interest. You should never use credit cards to make ends meet. During a cash crunch, credit card may look like the only option for making regular expenses but in the long run you will be debt trapped.
Make Good Use of Co-branded Cards
If you have availed co-branded credit card, you would be eligible for extra rewards, discounts and cashbacks when you shop from the store that sponsors your card. Make good use of these benefits to save on some extra expenses. Some normal credit cards also offer zero-cost EMI facilities at specific stores. Keep looking for the latest offers on your credit card and utilize them. But do not spend solely for availing offers; channelize your expenses in a way that allows you to save more.
Banks communicate all the offers and benefits available on your credit card at the time of application but once you get the card, it is hard to utilize all of these features. The best way to manage your credit card expenses is to keep a tab on the due date of different cards and pay them on time. Avoid expenses that entail exorbitant charges and maintain a sensible credit limit.Â
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