How to Make Smart Use of Your Credit Card this Diwali?

However, you need to ensure that you use your credit card smartly and do not fall yourself into a cash crunch. Here are few tips that will help you make smart use of your credit card this Diwali:

1. Clear your dues:

The first and the most important thing you need to do before you start splurging for this Diwali shopping is clear your pending credit card dues. If you pay the balance your credit score will improve and will facilitate the transaction. Paying off your existing dues will ensure you that you have the maximum limit available on your credit card to shop for Diwali. Also, you will not have the financial burden of paying huge credit card bills after the festival is over and once again you will be back to your normal schedule. Starting fresh with your credit cards, especially when you are going to make big purchases, is always a good idea.

2. Prepare your budget:

Budgeting allows you to create a spending plan that keep you out of debt and help you work in your own way. Due to the lockdown, many manufacturers and resellers have a large stock of unsold goods which they are planning to sell during the festive season by offering heavy discounts on them. Although the offers are difficult to avoid, you need to prepare your own budget for Diwali and stick to it no matter how much the offers prompt you to buy. Putting a maximum limit on your credit card will help you avoid unnecessarily splurging and make you financially disciplined.

3. Find the best offers:

Almost all credit cards will have some or the other offers during the festive season. Make sure you do your research online and compare the offers of various e-commerce companies and offline merchants. Some of them might be offering the best deals on credit cards, and others might be offering the best deals on cash payment. Therefore, you must do a comparison of all the offers available and find the one that offers you the product/service at the best price.

4. Choose the best-suited credit card:

Credit cards have become a convenient mode of payment. If you spend wisely you can enjoy great discounts and good deals that are on offer. The offers might not be available on all cards. If you have multiple credit cards, it makes sense to choose the card wisely that best suits your spending habit or for a specific payment. For example, use credit cards that offer miles to book your flight tickets, while filling fuel in your car, use a credit card that offers zero surcharges on fuel, etc. When speaking of the festive season, some credit cards might offer 5% instant discount, whereas others may offer 10% cash back within 90 days of purchase. Therefore, it is advisable that instead of simply using any credit card, choose the card for payment that offers you more value and suits your requirements.

5. Do not fall yourself into a debt trap:

Coming out of a debt trap is not always easy. Many people unknowingly fall into debt trap without realising the excessive interest on the remaining amount. Most credit cards offer Zero-Cost-EMI or No-Cost-EMI (Equated Monthly Instalment) to attract customers who can not afford to pay the full amount for the specific products or services. Although the credit card issuers claim that they do not charge any interest, you miss the cash discount you would get on cash payment. Moreover, 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 very affordable, you end up paying more than what you would pay on a cash purchase, which will create a debt trap for you for years.

6. Use your accumulated reward points:

A reward point is a perk offered by banks every time you spend on credit card. Once you have collected enough points you can reclaim it later. Many people completely forget about the reward points they have earned on their credit card usage. These reward points or coupons earned are valid only for a specified period. Diwali season is the best time to use those rewards points and coupons, which will allow you to go a little out of budget. Furthermore, make sure you use the reward points earned on your Diwali shopping done through your credit card before they expire.

7. Compare with consumer durable loans:

Nowadays, apart from credit cards, financial institutions and e-commerce companies have launched several loans, such as consumer durable loans, Buy Now Pay Later (BNPL) schemes, etc., which can offer competitive interest rates. Sometimes, the rate of interest on such loans could be considerably lower than the rate of interest charged on a credit card loan. Therefore, it makes sense to check other offers as well, instead of solely relying on credit cards.

8. Look for interest and charges:

Go with the standard borrowing rule, 'borrow what you can afford to repay'. Although the credit cards won't charge you any interest or late payment fee, if you pay in full before the due date, always consider the worst possible case. If you forget to pay your credit card bill before the due date or for some reason you are not able to pay it, you should know in advance how much interest and late fees you will be charged, and whether you will be able to afford it or not. The interest rate on a credit card can be anywhere from 15% p.a. to 45% p.a.

9. Keep track of your spendings:

Although 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 daily or after a specific time period, depending upon your spending pattern. This will help you know how much you have been spending and avoid excess splurging.

To Conclude:

Credit cards let you buy the products and services that you cannot afford at the moment but you have the ability to pay in near future. Sticking with financial discipline is vital to make smart use of your credit card during the festive season with full of offers and discounts. It is advisable to use your credit card only when you cannot afford to pay in cash or if you are getting a better deal than a cash payment.

Warm Regards,
Ketki Jadhav
Content Writer

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds