7 steps to using a credit card wisely – Forbes Advisor INDIA

With dozens of credit card companies vying for attention in one of the world’s largest consumer markets, choosing a card that’s right for your needs can be daunting. From SBI to HDFC and from Citibank to HSBC, every card issuer has their own list of benefits and ROI offers. Well-informed navigation is therefore a confusing journey.

Look at the data from the RBI: As of March 2021, India with a population of 1.3 billion people had 62 million cards in force, or five cards per 100 people. This explains the very low penetration in India which makes the market very competitive when it comes to acquiring new customers and making difficult choices for a consumer.

With a fair credit score starting at over 650 and a steady monthly income, you can easily qualify for an entry-level all-purpose credit card with your favorite bank. Premium features incur additional costs. Let’s understand how to use a credit card wisely in seven steps.

1. Determine the expenditure model

Before exploring credit card options for yourself, you must first understand that there is no “one size fits all”. You can’t emulate your best friend’s spending habits.

The first step is to analyze your own spending and choose the card that best suits your lifestyle. Go through the following checklist and answer each question to understand what and where you intend to use your card.

2. Match the spending model with plastic

  • Credit cards offer the ease of buying now and paying later. Consolidate your regular expenses and aim for a credit card that matches the three main spending categories for you. For example, if your main expenses are online shopping and digital purchases, such as meal or movie tickets, your search is limited to a lifestyle and entertainment card that offers perks like accelerated rewards. for online purchases and return offers on online reservations, etc. SimplyCLICK SBI card, HDFC MoneyBack credit card, RBL Bank Popcorn card, among others.
  • If you are loyal to a particular brand, you should go for a co-branded card to further enhance the benefits available. For example, Citibank Shoppers Stop Card offers instant redemption of reward points on every purchase. So, depending on your customer base for a particular brand, you can choose a card that offers greater value.
  • If you’re inclined to offline shopping, you need a card that offers point-of-sale (POS) benefits. For example, a card like the SimplySAVE SBI card is suitable for offline transactions like groceries, meals, etc.
  • If you have large fuel expenses, choose a card according to your local transportation needs eg Bharat Petroleum SBI card, Indian Oil Citibank card.
  • There is a range of premium travel cards that offer discounts and rewards for frequent travelers. A powerful travel card offers benefits on flight reservations, hotel reservations, free auto and baggage insurance, taxi reservations, concierge service, and more. However, Premium benefits are billed annually, so you only need to register if your usage warrants the charge. For example, the IndusInd Pinnacle World credit card and the HDFC Regalia credit card.

3. Assess affordability

Annual fees: Other than no-charge cards, all credit cards have an annual non-refundable fee. You can find a premium card with no membership fee, there is likely to be an annual fee from the second year. There might be a fee waiver on achieving spending milestones.

Interest rate: Credit cards should be used for free credit and certainly not for incurring exorbitant interest charges (24% to 48%) on rolling contributions. So, relatively lower rates should be an integral part of your decision-making matrix.

Late charge: Delays in paying invoices result in penal costs. Take a look at the MITC document and try to minimize future costs.

Foreign markup: Switching your card abroad incurs additional charges in foreign currency, generally between 2.5% and 4%. The rate of increase is indicated in the general conditions. The exclusive YES Bank First card offers one of the lowest surcharges at 1.75%.

Grace period: For payments, each card offers a grace period beyond the expiration date at no additional cost. Check and remember the grace period.

Rewards program: Explore how to maximize rewards on card spending. Check the expiration of the reward points and also determine the operational redemption process. Especially if there is an additional charge to claim redemption benefits. Few cards can also offer redemption points for an annual fee.

Other benefits: Credit cards can dazzle you and confuse you with a bewildering array of benefits. Fully integrate the terms and conditions of all additional and value-added benefits, which may include free insurance, fixed or time-limited partner programs i.e. loyalty miles, vouchers, etc.

Credit limit: This is the maximum amount you can spend on the card. Thus, your monthly expenses cannot exceed the sanctioned limit. Building a good credit history will lead to higher spending limits and increase your credit score.

4. Consider the specific personal priority

Before taking a final call, however, it is recommended that you consider some issuer-specific benefits. These can be unique benefits that only a particular issuer offers their customers. For example, if you travel by train very frequently, you might consider a card such as the SBI IRCTC card.

5. Correct use

New users can make mistakes in using plastic, which can be very costly. Better to be safe than sorry, a few tips: –

  • Never share your credit card PIN and other information with anyone, even if the person claims to be from the bank. When making a credit card transaction, make sure the EDC machine (the machine you enter your credit card PIN into) is in your sight and always verify the amount before entering the PIN.
  • Since most banks are moving towards contactless payments, please make sure that the “contactless” function of the card is only activated after your authorization.
  • Payments missing by the due date will incur a late charge plus interest on the outstanding amount. In addition, your expenses will no longer be interest-free until you pay the bill. An indicator in credit history also harms your future prospects for hassle-free approval of credit facilities.
  • You have to swipe your credit card for an amount that you can afford to pay off at the end of the billing cycle. Do not ride on the card, because the annual interest can be punishable from 24% to 48%. If you cannot deposit the full amount, apply for an EMI facility and reduce the interest rate to 15-18%.
  • Cash withdrawals by credit card should be the last resort; opt for small withdrawals, that also only for emergencies. In addition, frequent visits to the ATM could incur fees. In any case, this easy liquidity has a prohibitive interest cost of 2% to 4% per month.
  • Card companies often have great deals on card spending. You need to be vigilant and spend according to your own plans. Earning reward points shouldn’t be the main reason for racking up a huge card bill.

6. Multiple credit cards

It is a common perception that credit cards lead to a debt trap. On the contrary, you can better manage expenses with multiple credit cards. Let’s discuss how you will benefit from two to three cards.

  • Interest-free period – Several credit cards help you extend the interest-free period on your card purchases.

    Let’s solve this simple hack.

    Suppose your Card 1 has a billing cycle on September 30, and the balance payment is due in about three weeks, that is, October 21. You have a 50-day interest-free period for expenses made on September 1. With each day that passes through September, the interest-free window will continue to contract. Finally, if you make a purchase on September 30, you only have 21 days of interest-free credit.

If you have Card 2, you can benefit from longer interest-free periods. Make sure Card 2 has a mid-month billing date. The idea is to keep a 15-day gap between the billing dates of the two cards. To run in our example, use card 1 of 1st to 15e of each month and switch to Card 2 for expenses made between the 15the and 30e.

Future planning of the spending schedule on multiple credit cards will help extend interest-free periods.

  • Get the best deals – Each credit card issuer offers promotional offers and deals with specific retailers and brands. Some cards may be suitable for groceries or everyday purchases, while others may offer benefits on online shopping, food, taxi or movie reservations. Another deck of cards may offer benefits on the purchase of fuel or on bus or train tickets.

7. Being a parent thanks to plastic

It is a universal aspiration for parents to desire the best for their offspring. Whether they mature as professionals, musicians or successful athletes, children will always be required to manage their finances skillfully. And a credit card can be one of the first tools for imparting financial lessons to future leaders.

  • Emergency use: If the child cannot reach you, a card can help her take care of herself. Decision making under difficult and urgent circumstances is an invaluable life skill.
  • Credit history: A credit card with a regular payment cycle helps build an enviable credit rating. In due course, when other credit facilities are sought, a good credit rating will be of great help to young adults.

Final result

By choosing the right credit card, of course, you can chat with friends who are at a similar stage in their life cycle, as well as with bank officials. Your own research however, is the prime attribute. Thoughtful and wise management of a credit card provides flexibility and benefits that will surely enhance your lifestyle.

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