Use the bonus points that have accumulated on buying necessities (house hold appliances, clothes, groceries etc.) rather than using it on using it on things (luxuries) that aren’t really important to you. Only if the bonus points are used practically, you are actually saving cash because had to now have the bonus points, you would have to anyways spend cash on buying the same.
Credit cards of late have a negative connotation, and are pronounced as complete no-no by many, because of the high interest rates that are charged on late payments/defaults. Don’t let this negativity cloud perception of the product. You would be surprised to know that, if you are judicious in using this product, you stand to benefit monetarily, and of course it eliminates the need for you to carry cash everywhere.
More often than not the problem is that people do not understand the product well and hence are not able to use it to their advantage.
The credit card company offers you a ‘free credit period’ of around 50-55 days. The misconception most people have is that this free credit period is from the date of purchase. It is actually from the date of billing. E.g. Mr. Anand billing cycle date is 28th of December to 27th of Jan and his credit free period is 50 days. If his purchase was on 22nd Jan, he would enjoy credit for 25 days. However if he made the same purchase on say 01st Jan, he would enjoy credit free period of 47 days. So if you plan properly, you can enjoy maximum credit every month, which will help you manage your cash flows effectively, and will also help you earn the extra bit of interest on the cash that you have currently not spent on making the purchase.
In addition to the free credit period, every purchase made on your credit card, earns you reward points which when accumulated to a big amount can be exchanged for a range of items such as electrical appliances, flight tickets, home ware etc. These rewards will differ from company to company. Also credit card companies offer discounts, promotional offers with respect to shopping, entertainment etc. E.g If you buy petrol from a particular brand of petrol pumps, you get a small percentage of money credited back to your account after a certain number of days.
For the credit card to make money for you, two key things you need to keep in mind
- Cost of default: The interest rate on defaults ranges from anywhere between 2%-3.5% per month. So in effect it is a whopping 24%-42% p.a. Also, the interest starts from the date of purchase and not the billing date i.e. you do not get any interest-free credit period and all future purchases also start attracting the interest charges from the date of purchase.
So use the credit card if and only if you’re sure of having the means to pay the bills in time. Also, don’t forget that your credit score will get impacted too which will impact your future borrowing.
- Credit Limit: Keep a tab on your credit limit. Overshooting your credit limit will also have dire consequences for you with respect to the interest charged and your credit score.
How do you ensure that your credit card makes money for you?
- Widen the usage of your credit card (small and big purchases): You might as well earn bonus points and interest on the cash that you have not currently used, to make the purchase. You can use the credit card to pay monthly rentals, grocery bills, utility bills, gift expenses, subscription expenses etc. So the cash that you have not used to make the purchase will earn interest for you or will be used for fulfilling other immediate needs. E.g Maitali purchased an electrical appliance for Rs. 28,000 using the credit card she possessed. The purchase was made such that she could enjoy a credit free period of 45 days. The cash that she would have used to purchase this appliance is now lying in her savings account which is earning her an interest of 3.5% p.a. So if she decides to pay the bill after enjoying 40 days of free credit, she earns an interest of Rs. 107 in her savings bank account. Not only that, she has also earned some reward points on the purchase. The other advantage of using the credit card is your payments are recorded which makes it easier for you to keep track of your expenses.
- Appropriate use of Bonus points: Use the bonus points that have accumulated on buying necessities (house hold appliances, clothes, groceries etc.) rather than using it on using it on things (luxuries) that aren’t really important to you. Only if the bonus points are used practically, you are actually saving cash because had to now have the bonus points, you would have to anyways spend cash on buying the same.
Conclusion
Credit cards if used prudently will help you in managing your cash flow better, and at the same time, will provide you monetary benefits. That’s because you get interest free money for some period of time and you also earn reward/bonus points on the same. But if you use it without deliberation, it can prove to be disastrous as interest rates charged on payment delays are very high. Also, your credit rating will take a beating, as banks report these things to the credit rating agencies, which in turn will include it as part of your credit report. Don’t forget that credit score will not only determine whether you will get a loan but will also determine at what interest. Let not easy availability of credit and attractive rewards offered fool you into making impulsive purchases. It will prove to be rather costly.
Great Article…
Credit cards are a double edged sword. If used judiciously they can reap benefits for you else the CC cos reaps you !
Perfectly right, Arvind… A small addendum to your comment. If used judiciously they can reap benefits for you esle the CC cos rip and strip you!!!
As suggested in the article, BONUS points cannot always buy you necessities. This is because the Credit Card companies / Banks have a separate set of items you can exchange for the points. These items are all absolutely frivolous and secondly the exchange rate is so bad that you can hardly get anything worth the name.
Of course there are some exceptions where you can exchange the points for fuel coupons / Billed amounts / any items purchased on the Net. I always go for spends on such cards and hence try and benefit more
I agree that the exchage rate of points with the gifts has gone down in the past couple of years….it is just a matter of "inflation". I used to get 3 points for Rs 150, then 2 for Rs 150 now 1 for Rs 150. In the same way you could buy Rs 500 Shoppers' Stop voucher worth 750 points……now you get them for 1200 points…….this is for HDFC card.
very useful information.
Surveys are a good place to start if you are new to generating money on-line, but you gotta steer clear of the bad sites. You will get hosed and not make any money. However it can work if done in the right way
really good info.
this information is realy helpful to person like me becoz i really dont know anything about credit card.
I am using c.c. since 1995 and for the last 13 years, never paid any interest on purchases. Smart purchase and prompt payment is my advise. You can redeem the bonus points against consumables or other goods. It is an addiiotnal income over your monthly expenses. Credit cards are safe and accessible wherever you go and records your expenses, thus you control to meet the budget.
I agree, i started using Citibank cards in 1995, stopped using in 1997, and restarted in 2001, and have been using the same ever since. I particularly like the Indian Oil co branded card , which has no service charge on fuel buys, but rather pays back Rs 2 on every 150 spent. Can't beat that, specially if you have 5-10000 of fuel expense everymonth. You do have to make sure you pay them 3-4 days before due date just to be safe. It is also a great alternative for Cash. Go for it , and stay in your limit. personal opinion Citibank is the best in the lot !
Yes I fully agree . I am using CC since 1991.
never ever paid interest .
Use the weapon carefully , sothat you can reap benifit by way of free credit and bonus points.
I have been using credit cards for over 10 years and at one time rarely carried cash. But then I realised that it does not make econimical sense all the time. The article does not talk about the service charge that the credit card company charges you for using the card. ( About 2%)This is over and above the tax / vat that you would pay on the product or service( like meal in a restaurant ).
Also as the article states the interest that you earn on the money that you keep in your savings account (instead of using to pay your purchase in cash. ) will be around 3.5 % which is taxable. So anyway if you are in the lowest bracket – you end up paying 10% of the 3.5% interest and 2% to the credit card for service charge.
So over all the saving is nothing. Also then the credit card hopes that either you will default in payment or make a late payment and then they slap a heavy late charge penalty and interest.
lila shah
what you have given info is a real situation.Many of my friends r fed-up with cc and advised me not 2 go 4 any cc at any cost
@Lila Shah
The interest earned on Savings A/c Interest (presently 3.5% payable on Daily Balance Method) is completely TAX FREE !
The savings interest @3.5% in NOT tax free. Only that the banks do not deduct TDS on it. You MUST declare it in your IT returns. Check with your CA.
Few more tips
1) If you are 2 or more Cards and if Bill cyle is 15 days apart, you can enjoy better interest free credit days
2) pay full amount due 1 week before due date to avoid delay / misplacement in transit or pay by ECS which is ideal method but maintain balance amount in your account and give no scope for cheque returns?
For using c.c.judiciously is the best way. But Banks will be always hankering for the oppurtunity to levy inerest & charges at the slightest of mistake or oversight made by u. So, even if u r very cautiousl there may be a situation u will come across & then ur entire savinge by c.c. will be wiped out. So "Jagte Raho".
A simple Question "Why Banks are after u to take Credit Card for Nothing – no fees, no charges. c.c. is some times can ruin u and steal ur peace of mind.
Anyway, self confidence and self reliance and self commitment is very vital. So "Take Care before U Share"
very good suggestion,nirmal…..i also accept it truely
Really Useful information. Credit card should always be used for Convenience not at all for credit.
borrowed money will always rip and strip,…..credit card or otherwise…
I am using credit card from more than 5 years, for me it is a medicine for bad days, in today’s world no one will give Rs: 500 when you need, if you have Credit card you can save life, or do something and pay later. Paying 10% interest or more is nothing when it comes to life… I never paid any interest or late payment charges on my Card, because i use very smartly.
If you are smart user accept credit card, or else don’t touch it, it will burn your hands.
Well Said…………
Cool Guys… Well said … U should know how to play with Credit Card with in the frame work of the rules and regulations.. Make Optimum use of CC and Collect reward points 🙂 Never make partial payment.. Always make full payment.. It will enhance your credit worthiness and CIBIL rating as well
I too never paid any interest anytime during my credit card usage for 5 years. No shopkeeper gives you discount if you pay by cash……so go for credit card and get points…..save cash…earn interest…..redeem points….chill out and relax.
Information given all are true helpful hints to those who are beginners.
Credit Card is like life saving medicine and use of medicine as prescribed by doctors can save Life and over dosage will give negative results.
credt cards r gud to use in emrgency if u runnin short of funds … bt dnt use it for silly purchases … n be smart in using n patin complt outstandin amnt … thn u can manage it .. if nt jus destroy the card
For Business executives frequently on the move, the credit card is a boon!!!
You take a travel advance and keep it in your account and spend on your tickets, hotel bills etc by your c.c and on return to your office prepare the voucher and take the balance payment in cash and later deposit that amount in to your account and make ECS arrangement for c.c payments by due date. by this you can get maximum interest free credit days and your money can also earn some interest and above all no RISk of carrying cash!!!! and any money im hand will be of great help in emergency or emotional shopping. No need to ask anyone for few hundred / thousand rupees and above all one can SHOW OFF / STAND out in a crowd!!!!
Only advise is to spend within your limit and pay before due date and never take credit with C C issuers ,,,, Only interest free credit