6 no’s of credit card usage

By BankBazaar | April 22, 2015

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With the nation-wide “Swachh Bharat” campaign driving plastic into the wilderness (or the nearest dustbin!), it’s time to take care of another kind of plastic – your credit card. While you can’t just fling it into a dustbin, here’s what you can do to spruce up your credit card usage and clean up your act.

Making only the minimum due payment: Imagine that your bill amount is Rs.15,000 and your statement says minimum due amount is Rs.2500, offering you two choices – either pay the full amount, or pay the minimum amount due. The option to pay the minimum amount is always tempting, especially if you are cash–strapped at the end of the month.

But many are not aware that this is an expensive option. Card statements seldom reveal the minimum payment rules at quick reference. Sometimes, even after reading it, you are unlikely to comprehend the full extent of the costs you are setting yourself up for. Usually it ranges from 2% to 5% of the closing balance.

Using credit card when travelling overseas: As you own a card that can be used anywhere, it is quite natural to think that it is a convenient way to manage your expenses abroad.But remember, you own an Indian credit card and any purchase you make in a foreign currency are first converted into Indian currency and you are charged a foreign currency conversion fee. Additionally, you are also charged a foreign transaction charge which would be 2.5-3.5% of your purchase, depending on your card.

While traveling overseas you can opt for a pre-paid travel card instead. These cards have a substantially lower charges and fees making them far more pocket-friendly than regular credit cards.

Opting for cash advances against cards: When meeting with an urgent cash requirement and if short of money, many people tend to rush to the nearest ATM to withdraw cash from credit card without exploring other options. While credit cards offers cash credit limit, it should be used only as a last resort in event of any emergency.

Banks charges a transaction fee on cash withdrawal instantly, which will be around 2.5-3% of the amount withdrawn and further to that there will be interest charges on the amount withdrawn right from the first day. Interest charges on cash withdrawals against cards ranges between 24 to 48 percent of the amount per annum.

Using too many cards: Banks would like to see every one using cards; and their sales persons are sure to visit every one to sell cards, besides the numerous mails and calls you are getting. And consumers love anything up for grabs at no cost. When credit cards are offered for free, with no joining fee or annual charges, it is hard to resist. But remember, too many cooks spoil the broth. It is true in case of credit cards.

Since credit cards operate on buy-now-pay-later philosophy, holding multiple credit cards is a sure shot way to miss payments, and thereby entering the world of high interest rates and ongoing debt cycle. Even one small default on payments on a single card lowers your credit score, thereby making all others loans expensive for you.

Ignoring the monthly card statement: Many of us ignore the card statements that come to us via post. Most emails from the card companies too are left ignored. But this increases your chances of paying unwanted amount or for making unintentional defaults on your card.

If your bank is charging you some extra money on account of any fine or interest, you would never know unless you check the statement in detail. If you are ignoring monthly card statements you may also miss knowing on time whether your credit card security has been compromised.Always make it a point to go through your credit card bank statement and any discrepancy in the statement should be reported to the bank immediately to avoid any miscommunication and payment related dispute.

Buying Space-Fillers just for Reward Points: Everyone loves rewards especially when it is offered as discounts or redeemable points while making some purchases. Reward points offer a win-win situation for both credit card holders and the card issuing companies. Today there are galore offers, discounts and schemes for card users especially those offered through online shopping sites.

Many people however in their quest to maximize their reward point advantage go on a shopping spree using their credit card. Mostly they end up buying a lot of unwanted stuff just for the sake of reward points and attractive discounts. But they forget the fact that they are just inflating their monthly budgets by buying things with no immediate use.

So, pick up that broom (in your mind, of course!) and dust off those entrenched credit card practices you’ve accumulated over the years. Get your plastic to work for you.

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