Use credit cards regularly? Here are 10 smart ways to avoid getting into debt

According to a recent media report, by the end of March 2017, there were 29.8 million active credit cards in India. Despite the credit aspect and associated interest charges, people have been transacting in large numbers  through credit cards. The easy availability, advantage of paying through EMI, and rewards and discounts are the major attractions. However, lack of financial discipline and careless usage can cost a hefty price.

Let’s explore 10 smart ways in which you can avoid getting into a debt or distress due to credit card usage.

Pay Due Amount On Time

If you do not pay the outstanding amount on or before the due date, you are charged with an interest rate, which ranges between 24% and 48% p.a. On failing to pay the minimum due amount repeatedly, your CIBIL score would get negatively impacted. So, make sure you pay the outstanding amount on time to avoid paying interest and penalties.

One way of doing it is by setting a reminder on phone. You can also set an auto debit instruction with your online banking account for making payment of the credit card bill on a specific date after the bill is generated.

Maintain Low Card Utilisation Ratio

It is important that you do not exhaust the complete credit card limit on a regular basis as it increases your credit card utilisation ratio, impacting your credit profile negatively in the long term. Banks and financial institutions identify you to be credit hungry if your credit utilisation ratio is high. A credit utilisation ratio of around 40% is advisable.

Don’t Withdraw Cash

When you withdraw cash using a credit card, you do not get an interest-free period on it. You are charged with an interest of around 24% to 48% p.a. from the day of withdrawal. It’s best to stick to debit cards, when it comes to withdrawal of cash, and save the unnecessary interest outgo.

Use The Interest Free Period Smartly

The easy accessibility of credit cards often lead to spending beyond means. Remember, it is not a borrowing tool. If you are in a real need to borrow, look for alternatives such as personal or secured loans. The interest rates of these loans are lower than that of credit cards.

Make Good Use Of Reward Points

Credit cards come loaded with benefits such as cashbacks, discounts, etc. Do watch out for such offers and save up on your expenses while shopping. You can also earn reward points on specific merchandises.

Use The Credit Card And Wallet Combination

Some e-wallet companies have tied up with banks to offer interest-free credit period on transferring money to mobile e-wallet. You can save up a lot more by availing the benefits offered by both credit card and e-wallets.

Use Multiple Credit Cards In Rotation

If you have multiple credit cards, use them in rotation to keep the utilisation ratio in control. It would also help you to keep all your accounts open and cards active in the long-term.

Get The Right Card That Suits You

There are many types of credit cards available in the market with some offering benefits on flight bookings while some offering cashback on fuel etc. You must pick the one that suits your needs best.

Redeem Credit Card Reward Points On Time

The reward points that you accumulate over time on merchandises can be redeemed to avail discount on transactions. However, these reward points have a validity period. If you do not redeem the credit card reward points before the expiry date, your accumulated reward points get wasted. The validity period usually varies from one year to three years.

Read Your Credit Card Statement Regularly

Your credit card statement carries all the charges, interest and penalties levied by the credit card company. You must read this document without missing a detail. If there is an unaccounted element, you must immediately report to the credit card company.

Smart use of the credit card not only saves your money, but also improves your credit profile along with adding to your financial reputation.

(The writer is CEO, BankBazaar.com)