How to make the best use of Credit Cards?

 From my childhood I had been seeing a lot of credit card held by my father. And it is indeed plastic money but with it you can do many things. It is very important for you to understand that Credit Cards are considered to be one of the most riskiest class of loans ever invented. But is it worth the risk to hold one???

It was my brother who had introduced me to Credit Cards and its Risk and and from then on I went to own one.  My first Credit Card was from HDFC Bank (Money Back- Variant) it was the most basic credit card offered to me by the bank and it was free of cost. 

But he did warn me to note down what you spend every time you use the card or else you will fall into big debt. He had advised me to read a lot of articles on the web about how to wisely use the credit cards as revolving credits.  But the best knowledge comes from best teacher and that is " Experience" and yes, I did fall in a debt trap once. But since it was not a huge amount there was a way out from there by God's grace as they had introduced something called as Balance Transfer on your credit card and Loan on Credit Card which was far more cheaper than the interest rates of the Credit card companies charging for the non payment of the money spent/swiped on the credit card.

So now lets jot down how to use the credit card wisely:

1. Make a note of all the expenses you have to make every month (eg: bill payments, grocery, rent, etc.)

2. Make all the payment for the above expenses from your credit card. Initially use only one Credit Card (We shall name it as Credit Card A), because the more you spend with your credit card (and after timely payment), your credit score will build and start increasing and moreover bank will start getting a feeling that this customer is worth giving an upgrade from a Basic to a moderate or a premium Credit card Variant.

3. If possible try to make all the office expenses which would be reimbursed by your office with credit cards. As all this is the free expenditure you are getting show the credit card companies that you are ready to spend by using the Card.

3. After 1-1.5 years of making use of the credit card, then I would suggest you to go for the application of Card B, and then Card C and Card D.

4. The Reason for having 4 credit cards is just that you can divide the month into 4 weeks and try to opt for each credit cards billing cycle is for one week. The reason for doing this is just that you will get an additional buffer time to save money before you make the bill payments.                                                                Eg. Card A - Billing Date 5th of every month, Card B - Billing Date 10th of every month, Card C - Billing Date 15th of every month, and Card D - Billing Date 20th of every month.

5. Be careful that holding so many credit card will build in a lot of avarice in your mind but you have to be very firm in your mind to limit your expenditure. 

Tips for applying for Credit Cards:

1. Initially you would be able to get only the basic credit cards, but go for only those which are free or whose fees are minimal Rs.199/-, or Rs.299/- Read all the information thoroughly, I literally mean "all". 

2. Always start with minimal joining fees card and then if you wish you spend more you can always wish to do so.

3. Always check for the clauses personally by reading it thoroughly and not believe the tele callers, or websites like bankbazaar.com as they give misleading information.

4. Also check with banks where you hold a savings account, salary accounts. Most banks provide direct upgrade of credit card with specific types of account.

What to look for when applying for the credit cards?

1. Look for the joining or annual fees, nowadays due to Covid-19, many banks are offering nil joining or annual fees on even premium cards. Look out for them.

2. Look for the cards which give cashback rather than collecting points, as their point conversions ratios are very small. For eg: You would receive 1point on spending Rs. 150, and if you want to redeem those points to buy a small pen drive worth Rs.500, you will have to spend at least 8000-10000 points, instead you can spend cash to buy the pen drive itself. 

3. While looking at premium cards look out for complimentary airport lounges services which can be useful, look out for Buy one get one on your movie tickets, cards linked to Airmiles, or cards which give you  good discount on dining and not a mere 5%, etc. And lastly premium cards do give you more points to expenditure ratio.

 How to Make the payment for credit card dues?

1. Use smart apps like Cred , as they give you timely information about your due dates and also scan the bill if the card has been charged with any extra fees other than the expenditures made by you.

Debt Trap:

1. God not forsaken but if you happen to fall in any debt trap due to over spending and if you have extra credit cards, this is small step you could follow: Firstly stop all the expenses and make a balance transfer . Generally balance transfer gives you an extra time to accumulate the money. For eg: Kotak Mahindra Bank offers Balance transfer on credit transfer @ Rs. 349/- plus GST@18% per Rs. 10000/- and will give you 3 months interest free period (and you can utilize as much as 75% of the credit limit of Kotak Mahindra Credit Card). It is wise to utilize this option in the worst case scenario.

2. If you have fixed deposit then you can apply for an Overdraft against the FD, which is actually the most cheapest way to get a loan. But this is the least opted or suggested method by any bank official as they do not get any commission or very less if I may suppose and it doesn't help the bank get any business as the Rate of interest of the loan is less as compared to any type of loan and the time period to pay off the loan is about 10 years. 

Services offered by Credit Card Companies:

Lastly, Credit cards often do offer a wide variety of services, or promotions. Be vigilant and keep looking for offers, promotions and services offered by Credit Cards. With Credit Cards you can get Domestic and International Lounge Access, Loans on Credit Cards, Balance Transfer, Dining Discounts (GIRF Sale which generally comes out in February of every year), Groceries, etc. Reward Points can get you good items sometimes. Make sure u go through the catalogue of every credit card reward points so that you can set a goal. With reward points you can also avail coupon codes which can help you get upto 100% discount on subscription charges on OTT Platforms (Eg. SBI Card was offering free 12 months subscription on ZEE5 for 5000 points). You can use reward points to buy Air tickets, Book Hotels, etc.

Ever wondered that Loan on Credit Card is way cheaper than a Personal loan. I had got a Loan on Credit Card disbursed immediately for a colleague of mine on Credit Card which was 12.6% as compared to Personal at that time which began for 16% minimum if you work for a very Reputed company.

Yes, Credit Cards is a wise option if used wisely. Please apply for credit card on your own discretion. This blog is just for informational purpose.

My email id is juguchoudhary@gmail.com