In today‘s digital age, Credit Card is a very strong instrument holding immense power. However, people have two very contrasting perceptions regarding it. While some treat it as free money and indulge in overspending, on the other hand some are frightened to charge in fear of falling into a trap of debt. The reality is that Credit Card is neither all bad nor totally safe; it‘s more of a two-edged sword.
With positive mindset and financial discipline, using credit card can give you many benefits like a interest free short term loan, cashback, reward points and a high CIBIL score. But if you use the credit card without planning or using it as an uncontrolled spending tool, the banks huge interest and late payment charges can trap you in debt. The first rule to be known in use of credit card is to never consider it as an extra income or free limit. Treat credit card as a virtual replacement and spend only the amount which is sitting as a cash in your bank account.
The biggest and most costly mistake a credit card holder ever makes is breathing easy after paying the Minimum Amount Due (MAD). When a monthly credit card bill arrives at your home, it states two figures the ‘Total Amount Due’ and ‘Minimum Amount Due’ (usually 5% of the bill).
New and inexperienced users often get the wrong impression that paying Minimum Due will clear all dues and free them from any further charges. However this is a pretty cunning trap set up by the bank. By paying the Minimum Amount Due you only avoid the late payment fee but the remaining 95% of the bill amount is charged with hefty interest (30% to 42% per annum) from the very day it is billed. Additionally, till you clear your entire outstanding bill, the free interest period on every new expense made in the subsequent month ends and interest is capitalized from the first day itself. This one small mistake keeps dragging you in debt for months together.
If you want to avoid getting into trap of paying Minimum Amount Due and want to keep your financial health in good shape, follow these practical rules:
Always pay off the Full Amount Due on statement date. Make it a habit to make payment 2-3 days before due date so as to avoid paying late dues due to some technical mistake.
Make Auto-Debit Active: Set your credit card bill for auto-debit from your bank account and select ‘Pay Full Amount’ option. By doing so, you will never forget your due date & will avoid late fee.
Conversion to Emergency EMI: If you are unable to make the full payment in one time due to medical Emergency or any other un foreseen problem then instead of paying the Minimum Due, get the full bill converted into Low-Interest EMI. EMI Interest is much lesser than normal overdue interest rate used by credit card.
Nothing more to Spend: Until the existing bill is paid off completely, no new purchases should be charged to that credit card.
Credit card se maximum benefits lene aur bina kisi risk ke use karne ke liye beginners ko in 4 golden rules ko hamesha yaad rakhna chahiye:
Rule 1: 30% Credit Utilization Ratio (CUR) Maintain Karein: Apni kul credit limit ka sirf 30% hi kharch karein. Maan lijiye aapki card limit ₹1 Lakh hai, toh ₹30,000 se zyada spend na karein. Isse aapka CIBIL score tezi se grow karta hai aur banks aapko financially responsible maante hain.
Rule 2: Never Withdraw Cash From ATM: Credit card ka use karke ATM se cash nikalne ki galti kabhi na karein (jisey Cash Advance kehte hain). Cash nikalte hi transaction fee lagti hai aur pehle din se hi 40% tak ka interest shuru ho jata hai.
Rule 3: Debit Card Mindset Apnaayein: Credit card se sirf wahi items buy karein jinke liye aapke paas bank account mein cash maujood ho.
Rule 4: Review Statements Monthly: Har mahine apna statement dhyaan se check karein taaki kisi bhi hidden charge, wrong billing ya fraudulent transaction ka turant pata lag sake.
Once you know how to use the credit card a disciplined way, it givers you not only financial management but also a number of extra benefits and rewards as:
Reawards & Cashback Ka Advantage.: Use those Reward Points, Fuel Surcharge Waiver & Flat Cashback earned on every transaction in paying your bills or taking shopping discounts.
Builds Strong Credit History: Paying completely on time for 6 to 12 months, you will get your credit score (CIBIL) to be more than 750, and Next Time Home Loan, Car Loan in much lower interest rate and instant approval.
Final Action Plan For Beginners:
Beginner should start off using a Lifetime Free (LTF) Credit Card without annual fee or a Secured Credit Card against their Bank FD. Use your credit card for Daily expenses, stay within monthly budget and pay ‘Total amount Due’ in full every month. Credit cards are great servant if you learn to control them but makes a bad master if they allow you overspend!
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