How to Manage Your Credit Card for a Debt-free Future

A Credit Card is a handy instrument only as long as you use it in the right way. The moment you get it wrong, the debt could spiral out of control. You end up in a debt trap and impaired credit history. It can take you many years of diligent repaying to get back on track. However, we shall look at the positive aspects and see how to manage your Credit Cards well for a debt-free future.

1.       Keep your PIN safe

  • Never write down your PIN on the reverse side of the card. It is a clear invitation to danger. If someone steals your card and uses it fraudulently, you will have a hard time explaining to the bank. You get your refunds only if it is not your fault.
  • Remember to change the PIN frequently. You can do it at the ATMs or even online in some cases. You should be able to remember the PIN, but do not make it very easy for others to guess it.

2.       Develop a habit of checking your bill

  • It is better to be safe than to be sorry. Check your Credit Card bill every time before you pay it. Crosscheck the entries on the bill with your receipts. In case you find an unrecognisable entry, bring it to the notice of the bank.
  • Look out for the auto-debits and the recurring payments on your Credit Cards. You should cancel these ‘Continuous Payment Authority (CPA)’ instructions on their expiry. Remember, that these CPAs can take your Credit Card balance over your credit limit whereby you incur additional penalties.

3.       Pay the bill in full

  • Banks have a unique method of charging interest on the Credit Card outstanding amount. In case you run up a bill of 10,000, but you pay Rs. 9,500, the bank charges interest on the entire Rs. 10,000 and not the difference amount of RS. 500. Not all Credit Card issuers do that, but it is always better to check up with the Credit Card issuer.
  • In case you do not pay your bills in full, the debts could add up and spiral out of control very quickly.

4.       Avoid paying late

  • Banks allow you to pay your bills late. However, these facilities do not come free of charge. They penalise Also, you might have to pay interest on the amount you owe.
  • If you are a repeat offender, the banks do not hesitate to reduce your credit limit or even cancel it altogether.
  • You might also not be able to Apply for New Credit Card Online as repeated late payments affect your credit score substantially.
  • You should set up the direct debit facility to avoid making late payments.
  • In case you pay online, ensure to pay a day or two before the due date. It can take a couple of days for the payment to reflect on your Credit Card account.

5.       Do not fall into the minimum payment trap

  • All Credit Cards have this facility of allowing you to pay the minimum payment due amount. The minimum payment due is around 5% of the outstanding amount on the card. Remember the banks charge you approximately 3% to 3.5% per month as interest on delayed or incomplete payments. Hence, you would need a minimum of 50 months to clear the total Credit Card bill amount if you keep paying the minimum amount due and do not incur any newdebts.
  • If you do not pay the full bill, the banks charge interest on every debit on the card right from the first day until the date of payment.

6.       Do not overstretch your limit

  • Stay within your Credit Card limits. Usually, the banks decline transactions if the amount goes over the limit. However, it does not apply to the CPA transactions. In case you need a higher ceiling, you can always request your card issuer to enhance the limit.

7.       Keep cash withdrawals or cheque requests at the minimum

  • Withdrawing money from an ATM using your card is easy. Remember, you have to pay interest on the withdrawn amount from day 1. You also incur a cash advance fee.
  • Similarly, avoid requesting the banks to issue cheques or drafts on your card up to the cash limit. It is a beautifulfacility but comes ata substantial

8.       Go for Credit Card insurance

  • Protect your Credit Card payments by opting for credit card insurance. You never know when you might need one. However, note that the facility might be expensive. Think it over twice before you do so.

Use your Credit Cards smartly, pay your bills on time, and be free from debt. There are no better friends than your Credit Cards if you use them well.

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