So, you’ve finally taken the plunge and obtained a credit card. Congratulations. But whether you are a college student getting their financial freedom with their first credit card or a seasoned credit card user, there are certain rules to swear by and certain others to avoid when it comes to using a credit card prudently.
In this article, we have compiled a list of useful dos and don’ts you can use to avoid falling into credit card debt and also improve your credit card.
When you are using a credit card, there are certain practices that can help in managing your finances quite well even when spending on the credit. This is extremely crucial as how you use your credit card can significantly impact your financial stability and security in the long run. Here are some dos for you to keep in mind when using a credit card:
- Keep in mind all the due dates
Whether you use only one credit card or multiple ones, be sure that you know the due date of the payment on the card(s). This becomes especially important if you own more than one credit card and you might forget the due date for each and every account. Failing to pay on time can cause serious damage to your credit statement and score while also landing you in debt. Nowadays, there are also a number of mobile apps that help you keep a track of your credit card due dates by sending reminders. You can also register for reminders from your financing institution over emails or messages to get timely reminders.
- Pay all dues on time
As a rejoinder to keeping in mind the due date on your credit card is the necessity of paying your credit card bill on or before the due date. There are several advantages to paying your credit card bill before the due date, not the least of which is that you might be able to pay off these dues without any interest being charged on these. At the same time, you will also avoid any penalties, often quite hefty, which are incurred on missing the payment deadlines.
- Check your statement monthly
When using a credit card, don’t just pay off the amount that shows up at the end of your bill. Go carefully over all the transactions mentioned in your monthly statement. This is important to keep an eye out for transactions you have not made (an indicator of fraud) as well as to keep your spending in check. The statement also lets you know about the interest being charged on your balance.
- Make more than the minimum payment
Often, credit card owners make the mistake of assuming that the minimum payment amount is enough for them to pay when the time comes to settle the bills. While this is an acceptable practice for when your budget has gone haywire in a particular month, do not make a habit of it as it will only add to your debt. Paying only the minimum and leaving the remaining portion of your credit card bill unpaid will pile up over time and can even land you in debt.
- Use the reward points
To make credit cards more advantageous to owners and to attract more clients, credit card companies nowadays offer a host of rewards in the form of cashbacks, discounts, etc. which you can avail. Be sure to keep an eye out for any such offers being given on your credit card when shopping or making any transaction and make a lucrative bargain.
- Set a reasonable limit
If you have trouble managing your credit card shopping, it is a wise idea to set a reasonable limit for your credit card. This will help you keep your spending in check and also avoid debt.
When it comes to making the best use of your credit card, there are also certain actions you must avoid to ensure that you are prudent in managing your finances without getting into the debt trap. Here is a list of don’t to follow when using a credit card:
- Don’t get multiple credit cards
It might appear to be a great idea to own multiple credit cards at the same time. However, while they may ease your shopping routine, at the end of the month, when the due date for payment falls, they may severely dent your finances. More credit cards mean more bills to pay, much higher interest paid on purchases as well as increased debt if payments are not made in time. The easiest thing is to own just one credit card and if required opt for a second and at the most, a third card.
- Do not use credit as a substitute for your income
A sureshot way to end up in a big financial mess is to consider credit payment as a substitute for your income. Essentially, when you are buying something on credit, it is against your future income which will be sued to pay it off. If you use your credit card even for the daily expenses which you should have charge directly to your income, it will lead to a drastic reduction on the available cash flow for you to use. This will severely dent your financial health in the short and in the long term. Hence, avoid paying by a credit card unless it is for a significant charge.
- Don’t close old credit card accounts
If you have obtained credit cards to also improve your credit score, it is a prudent idea to not let old credit card accounts closed due to lack of use or any other reason. The credit statement takes into account the age of your account and the older it is, the higher your credit score. So instead of closing down the credit card account you don’t use or haven’t used in a long time, find another purpose for it. For instance, you can consider charging a magazine subscription to this account which will keep it active and not hit you severely either.
- Do not carry a balance at the end of the month
A common misconception about credit card usage is that carrying a balance on it at the end of the month will help you, especially if you are using your credit card to build a credit score. Actually, carrying a balance on the card will imply a higher credit utilization ratio (ratio of debt to available credit) and also lead to increased interest charges. It is therefore advisable to keep zero balance in your credit card account at the end of the month.
Here you go then. Once you have taken the step to own a credit card, wise use will help you not just be financially stable while checking your spending but also help you in building a decent credit score. This handy guide of dos and don’t will set you on the right track on best using your credit card and help you manage your personal finances better.
Aahna Gandhi is an enthusiast traveller, writer and a PR Professional. She likes sharing memorable moments from her travels and inspire others to live a life full of wonder. Known for her content, she has worked for travel, technology, lifestyle, health sectors as well as finance.
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