Credit cards are wonderful financial instruments that are very helpful not only while making transactions for payments but also come across as effective tools for short-term credit. However, if not used properly, credit cards turn into the most expensive financial tool to possess.
We wish that you make the best use of your credit card. Hence we bring to you 5 habits that highly effective credit card users have in common. By adopting these habits, you too could make the best possible use of your credit card.
1. Have A Budget: Credit cards, monthly finances or a country, a budget is necessary everywhere. Take a look at your monthly expenses and make an account of which of these expenses could be footed through your credit card. You could also pay certain expenses like flights/fuel with your co-branded credit card and avail benefits. But while budgeting for your expenses with your credit card always keep in mind the available credit limit on your card. Always ensure you keep your usage ratio to 30-40%.
Additional Reading: 5 Rules for Your First Credit Card
2. Pay in Full Every Time: The credit card issuing companies make money in the form of interest and other charges when you do not pay your dues on time. Do not be lured by the small amounts shown under the Minimum Amount Due. That is the mandatory amount, however, the rest of the payable amount continues to accrue interest till the time it is paid off in full. By not paying the full amount, you also attract interest on the fresh purchases on your card. Also, keep in mind that interest charged may seem small at 1.99% -2.5%, but this is just the per month figure. When annualized this works up to 36-40% which is sure to cause a huge dent in your finances.
3. Never Use Cards for Cash Advances: Credit cards could also be used for withdrawing cash from any ATMs just like your debit cards. But withdrawing from credit cards would never be the same as from your credit cards. Cash withdrawals from credit cards are charged heavily (interest+charges) right from the day of withdrawal till the date of repayment. Do not mix up swiping the card at a merchant establishment or online usage with cash withdrawal. These transactions have a grace period while cash advances don't.
4. Use rewards/offers to best advantage: Most credit cards come with some offers and rewards for usage at certain merchant establishments. It is good to know about these offers and make the best use of them. Accordingly choose cards that cater to your usage like co-branded cards for travel, fuel or movie tickets and shopping. For Ex: A frequent flyer can earn points on booking tickets and make use of lounge facilities at airports, thereby saving quite a bit.
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At the same time do not spend more than intended on your card just to make use of the offers/rewards extended on your card.
5. Make clever use of repayment dates: Highly effective card users use up to 2 cards with varying due dates (One at the start of the month and the other sometime later). They effectively time their purchases on both the cards in a way that they get maximum grace time. For Ex: If a card has Billing date on 20th of the month and payment date by 05th of the next month, any purchase made on the card on 21st/22nd of the month effectively gives you up to 45 days of credit.
Additional Reading: Credit Card Mistakes? Here Is a Quick Guide
But having more than one cards itself may act as a double-edged sword if you are not cautious with the due dates.
Credit cards make our lives very easier provided they are used the right way. Defaults on payments not only cause you lot of financial damage but affect your credit score in the wrong way.