Arthayantra.com
Credit cards are the most easily available form of loan. You shop now and pay the bills later. As attractive as it sounds, it comes with a danger of increasing debt if not used efficiently. Make sure you have the following points on your checklist next time you are applying for or using a credit card:
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1. Shop for a credit card before planning to shop with it
Before applying for a credit card, make sure you evaluate all the options available in the market. Different banks provide different offers on the credit cards. Don't let your comparisons stop at card limit.
Know the interest rates being charged on different credit cards and their respective processing fee and renewal fees. Analyze the benefits you receive on signing up for a credit card.
Know the different benefits in the form of loyalty points or pay back points, how to and where to redeem them. It is advised to analyse the top 5 expenses you expect to transact with your credit card and look for specific credit cards which provide more benefits (fuel, travel, retail shopping etc.).
2. Know what you are agreeing to
Read the documents carefully before signing your credit card application. Don't just rely on the statements made by the sales executive. Know the clauses, interest rates and renewal fee of the credit card.
This can help you avoid surprise payments and long phone calls with your credit card call center executives in the future. Sometimes credit cards are sold with no annual fee, which is in fact only waived off for first year.
3. Avoid excessive usage
Owning a credit card can give false sense of additional buying power. Make wise decisions before making any purchases using your credit card. Differentiate between what you "need' and what you "want".
This helps you avoid budget crunches during the month end when you are supposed to make credit card payments.
4. Avoid late payments
Making a late credit card payment can have significant negative consequences on your credit score. It negatively affects your credit worthiness. It not only increases interest rates when you are looking for a loan or credit card next time, but also drags down your eligible amount.
If possible, make the credit card due payments as and when you receive your monthly statement. Make sure you set reminders on the bill payment due date in order avoid slip ups in bill payments and late fee payments. You can also opt for automatic bill payment.
5. Make sure you pay the total bill, not just the minimum payment
Don't get into the habit of making only minimum due payments. Making only minimum payments every month will indirectly increase the time taken to clear the debt accumulated.
You will also end up paying high amount interest by deferring the credit card payments.
Authored by ArthaYantra.com , an integrated online personal finance company.
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