10 Tips to Use Your Credit Card Wisely

Jan 02, 2023 / Reading Time: Approx. 10 mins

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A credit card is a great and the most popular financial tool that opens a short-term line of credit and increases the purchasing power of the cardholder. With hundreds of credit cards to choose from, selecting the right credit card that is best for your needs can be a daunting task. Furthermore, with the multiple layers of security and alluring benefits offered by credit cards, many cardholders cannot resist the temptation to swipe the credit card without giving it a second thought.

All of it results in cardholders making the wrong choices and recklessly using credit cards, which ultimately puts them in a financially challenging situation. Therefore, in order to avoid future regrets, it is crucial to use your credit card wisely.

Here are the top 10 tips to use your card wisely:

1. Choose and use the right credit card/s:

The availability of thousands of credit cards to choose from makes selecting the right credit card suitable to your requirements a daunting task. Choosing a credit card solely based on the recommendation of an agent or friend or opting for only a credit card that you are pre-approved for might not prove to be a good decision. Therefore, a thorough comparison of various short-listed cards is advisable.

If you are using a credit card for the first time, it makes sense to opt for a basic credit card, which is usually lifetime free and offers consistent rewards across shopping categories. However, if you already have a primary credit card and looking for another card/s, it is advisable to check your requirements and choose the suitable co-branded credit card that can offer you maximum benefits.

Apart from choosing the right credit cards, checking the credit card and merchant offers is equally important before swiping the card. Using the right credit card at the right time is the key to making the most of credit card benefits.

10 Tips to Use Your Credit Card Wisely
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2. Know your credit card:

Individualsoften trust the words of a salesperson who represents the credit card company. However, salespersons might not always upfront tell you all the hidden terms and conditions or charges to make a sale. Moreover, such charges and terms are mentioned in a small font on the credit card brochure and company website.

There have been many instances when cardholders are told that the credit card is free for a lifetime, but the credit card provider starts charging an annual fee after a year or two. When a cardholder complains about it to the company's customer service, they are told that there is a minimum spending requirement to get the benefit of an annual fee waiver.

Furthermore, cardholders generally ignore some charges like annual fees, late payment fees, interest rates, forex fees, cash withdrawal charges, etc.However, these fees and chargescan make a huge difference once you start using the card.

Hence, to avoid such situations, make sure you carefully read all the terms and conditions, product features, benefits, charge sheets, etc.The time invested in research and reading the fine print is worth avoiding unpleasant surprises in the future.

3. Spend in line with the budget:

Making a yearly budget, breaking it further into monthly,weekly/daily budgets, and spending in line with the same is an old yet proven method to avoid overspending.However, you tend to spend more than your budget when you use a credit card,as the money doesn't go from your pocket at the time of purchase.

Cardholders forget about the debt they have created and tempt to shop more. The cycle continues, and they keep accumulating debt which later becomes difficult to repay.

Hence, you must avoid onspendings like small indulgences, big purchases through credit card EMIs, retail therapy, etc., through credit card.Recklessly spending with your credit card/s can put you in a debt trap, and it may become challenging to come out of such a difficult situation. Therefore, it is necessary to keep control over your credit card spendings and spend in line with your budget.

4. Set a spending limit on your card/s:

Many cardholders do not know that their credit cards allow setting separate domestic and international credit spending limits through internet banking or online credit card accounts. This feature is the best for keeping your credit card spendingin control and keeping the credit card secure in case of loss or theft.

So, even if your credit card is lost or theft and someone tries to misuse it, they cannot spend more than the set limit.

5. Take the necessary security measures:

With the increased use of digital banking channels and plastic cards during the pandemic, online and credit card-related frauds have also increased. To avoid being a victim of credit card fraud, you should take the necessary precautions.

Fraudsters can make credit card frauds by gaining access to your sensitive informationsuch as your personal details, credit card number, CVV, One Time Password (OTP), etc., through several ways, due to which your credit card can easily fall prey to unauthorised activity.

Here are some common ways fraudsters make credit card frauds:

  • Physical access to the credit card (lost or stolen credit card)

  • Skimming your credit card (through Point of Sales (POS) devices)

  • Phishing

  • Malware Attack

  • Stealing your email details

  • Stealing your documents

  • Looking over your shoulder at checkout

Click here to know how you can prevent being a victim of these frauds.Besides, you should not share your sensitive information with anyone. You can also opt for credit card insurance offered by credit card providers for extra protection against any credit card-relatedfraud.

6. Always make repayments on time:

Financially undisciplined credit card holders create debt by spending more than they can afford to repay, whereas some cardholders genuinely forget the due date, especially those who hold multiple cards.

Whatever could be the reason, if you fail to make the repayment of the entire credit card due amount on or before the due date, the credit card provider starts charging you a high rate of interest from that very date until the entire amount is repaid. As you might be aware, the interest rate is usually very high on credit cards, which ultimately increases the outstanding amount.

When repaying the dues, some people again fall into the trap of 'Minimum Amount Due' and pay only the minimum required amount. However, theyget charged interest on the unpaid amount until they repay it in full.

Therefore, You should always pay your credit card bills in full on or before the due date. If you have already created a debt, try to repay as much as possible to minimise the interest amount.

Before making high purchase transactions, have a proper repayment plan in mind and be consistent in clearing the total dues on time. In addition, it is best to set an auto-pay to pay your credit card bills to ensure your bills get paid automatically on the due date through your registered bank account.

7. Avoid purchases with credit card EMIs:

Most credit cards offer No-Cost-EMI or Zero-Cost-EMI (Equated Monthly Instalment) to attract customers who cannot afford to pay the full amount for specific products or services. While credit card issuers claim that they do not charge any interest, you miss the cash discount you would get on cash payments.

Furthermore, the credit card issuer charges you the processing fee to convert your purchase into EMIs. Hence, although the No-Cost-EMI option makes the product/service look affordable, you end up paying more than what you would pay on a cash purchase, which can create a debt trap for you for years.

8. Do not use your credit card for cash withdrawals:

A cash advance is a way to get money instantly by withdrawing cash through your credit card. Many cardholders believe that a credit card cash advance is similar to swiping a card that does not attract any interest if the repayment is done on time. However, the credit card company charges interest for a cash advance from day one. Apart from the interest, you may also get charged with a high cash advance fee.

Therefore, it does not make sense to take credit card cash advance as by using this facility you end up paying much more than what you have borrowed. If you need money for some emergency, instead of using the cash advance facility, you may consider opting for personal loans offered by several financial institutions that can be availed immediately and charge comparatively lower interest rates.

9. Review your credit cardspends:

While you have prepared your budget and set a limit to your credit card spendings, it is necessary to keep track of your credit card spendings by logging into your credit card account or internet banking after a specific period, depending upon your spending pattern. This practice will help you know how much you have been spending and avoid excess splurging.

10. Make the most of the reward programmes:

A reward point is a perk offered by credit card providers every time you spend on a credit card. Once you have collected enough points, you can reclaim themon your next purchase. Many people completely forget the reward points earned on their credit card purchases. Such reward points or coupons earned are valid only for a specified period. The festive season is the best time to use those rewards points and coupons, which will allow you to go a little out of budget.

To conclude:

Credit cards let you buy the goods and services you cannot afford at the moment, but you have the ability to pay in the near future. However, sticking with financial discipline is vital to use your credit card smartly. It is advisable to use your credit card only after analysing the use of the product/service and the need to swipe the card. Furthermore, before swiping your credit card, make sure you have a repayment plan.

Instead of swiping your credit card for big purchases, it makes sense to make a financial plan to buy that product/service and invest in carefully selected mutual funds. PersonalFN's SMART Fund Explorer can help you achieve your financial goals by investing in equity mutual funds. You can select any of your financial goals from the dropdown option, the time horizon to achieve that goal, the amount you need as of today, and choose the lump sum or SIP amount you can invest. Once you enter your email id and click on submit, the SMART Fund Explorer will provide you with two plans which you can choose from based on your risk appetite.


Warm Regards,
Ketki Jadhav
Content Writer

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