I remember my parents always harboured a deep suspicion of credit cards. There was always the perception that they would lead one into temptation and make one spend money one didn’t have. It was probably a generational thing – a general distrust of all things capitalist and consumerist. Credit cards were also seen as a way for banks to charge usurious interest and in this my parents were right. Banks do charge very high interest for late payments on credit cards. However, with these credit cards dos and don'ts, you can make credit cards work for you instead of the other way around.
The first thing is to never forget to pay your credit card bill on time. The interest is in fact usurious – 3 to 4% a month (so about 36 to 48% a year). However, interest becomes chargeable only when you don’t pay the due amount on time. Also don’t be fooled by the ‘minimum amount due’ if you're not paying the full amount on the due date, you will be paying more later. So, pay your credit card bill on time and pay in full.
At all times, keep in mind that a credit card only lets you pay later --- so don’t use a credit card as an emergency fund or for anything that you cannot afford otherwise. Use it only to get yourself a bit of a breather; and only if you're sure that you're going to be able to make your payments when they become due.
‘Easy instalments’? Read the fine print. Here as well, if they offer to break payments down into monthly instalments, the bank will charge interest. So don’t take them up on that instalment offer.
Pay attention to what amount you're paying. Sometimes, especially when making a big-ticket purchase using a credit card, a seller may include the transaction fee /commission of up to 2% in the bill. They are not permitted to do this by the RBI. This is a rental fee that merchants pay to the bank for using the POS machine and is meant to be absorbed by the seller, not the consumer.
Don’t give your card or card details to anyone. Keep track of possible credit card fraud and be vigilant about where you use your card. If you lose your credit card, immediately call up your bank to prevent misuse.
There are a lot of banks and corporations that will call and offer you credit cards. Don’t blindly accept them. Look at the terms and conditions, charges, both hidden and otherwise. Choose a credit card that doesn’t have a yearly charge.
Use your credit card in places where you don’t want to carry a lot of cash. Credit cards are also useful for paying exact amounts where change is a hassle – we know how most establishments never seem to have change for some reason.
Keep track of your purchases and payments. It is easy to lose track and to overspend in a given month, such as during the festive season or when you're travelling/attending weddings and so on.
If you feel that you may forget to pay your credit card bill on time – the due date is specified on your monthly bill – enable autopay. And of course, ensure that there are always sufficient funds in your account for the automatic payment.
You can enable or disable the contactless payment feature (NFC) of your credit card which lets you pay bills of up to Rs. 5000 without swiping/entering your PIN. If you are uncomfortable with the idea of using your credit card without keying in the four-digit pin or are concerned about it being misused, disable this feature. You can do this on a net banking platform or by calling your bank.
If you use your credit card a lot, keep track of reward points. These entitle you to cash payouts or gift coupons from a large number of merchants which you can redeem against purchases. It can be fun to let those points accumulate and then opt for e-vouchers (via SMS or email) or physical gift cards that will be mailed to the registered address and to go shopping using these.
So with a little bit of care, you can get a lot out of your credit card – without paying the usurious interest amounts that older generations were so suspicious of.
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