How To Be A Disciplined Credit Card User

By | August 2, 2017

Credit Card User

Post demonetisation, plastic money has gained enormous importance in our everyday life due to the convenience it offers against cash. Especially, Credit Cards offer added advantages such as instant credit, time for repayment after spending, reward points, etc.  However, there are interest charges on the credit facility and if it is not used wisely, it could backfire.

Undisciplined use of Credit Cards can result in a negative Credit Score, thereby affecting your borrowing potential for future. Credit Cards levy high interest if the utilised amount is not paid back within the due date, often leading to a debt trap.

Here are some smart hacks to improve financial leverage, enjoy reward points/cashbacks, and save on interest accumulation.

Always clear your complete outstanding bill

While some Credit Card users wait for the due date to arrive to clear the bill, some keep the bill growing for months. Not paying the minimum amount before due date can lead to heavy penalty charges.

Clearing off the complete outstanding amount before the due date is a good practice as it won’t just save you from paying interest, but also improve your credit profile with time.

If you only pay the minimum due amount, you lose out on the interest-free credit period till the outstanding amount is cleared. Your outstanding balance would attract an interest of 1.5% to 3% per month. So, avoid making further transactions unless your outstanding bill is cleared.

Set your own credit limit

While a Credit Card company may have a certain credit limit, you must set your own limit based on your spending potential. You must not spend beyond your means. You can lower your credit limit by requesting the Credit Card company to do so. Once your income increases, you can reset the credit limit to suit your spending potential.

Set payment reminders and use the auto debit facility

Make sure that you pay your Credit Card bill before the due date arrives. And to do so, you could set a reminder on your phone or activate SMS alert. Usually, Credit Card companies send messages for due payments, but you could always set another reminder to avoid delay.

Another effective way to ensure timely repayment is by activating auto debit facility in the bank account. Banks offer the option of auto debit for the payment of minimum due and the complete outstanding amount.

Keep the credit utilisation ratio under control

Even if you are someone who pays off your dues on time, a high credit utilisation ratio could knock your score down. A high credit utilisation ratio indicates that you are a risky borrower.

Banks consider a credit utilisation ratio of around 30% of the total limit to be financially healthy. You could use more than one Credit Card to reduce the credit utilisation ratio as your spending would be distributed across multiple cards.

Do not use a Credit Card to withdraw cash

Credit Card companies do not offer interest-free credit period for cash withdrawal. Interest is levied from the time of withdrawal, so it’s best to avoid using Credit Cards for withdrawal purpose.

Check your bill regularly

It’s important to check your Credit Card bills regularly to ensure you are making the best use of the card. Credit Card charges, reward points, offers, discounts, etc. are all mentioned in the monthly statement. A careful analysis of your statement can help you weigh your benefits against the cost.

Credit Cards can prove to come handy if used smartly. A careful watch on spending, timely repayment and availing of offers can keep you on the edge.

(The writer is CEO,

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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