It seems like whether people love or hate credit cards, almost everyone considers them an invitation for getting into debt. Yes, there is a certain amount of danger involved with any instrument of credit, but using a credit card in a responsible manner can actually make it a powerful tool in your financial toolbox!
Let’s look at the three main aspects of using credit cards, i.e. the How, Where, and When of it all:
1. HOW to use a credit card?
Essentially, a credit card gives you access to revolving or flexible credit. Every time you use it, your available limit is reduced, and every repayment you make tops up the credit limit again. The catch is that you need to pay interest on the money you use, like a loan.
Now for the benefit. You get anywhere from 20 to 30 interest-free days after you make a purchase with your card. If you repay the amount used before the next billing cycle, you will not be paying interest on it. If you’re smart and keep track of your spends, you basically have a free loan for up to a month!
That’s our top tip on how to use a credit card wisely – pay it off in full every month instead of just making the minimum payment or part-payment. Interest adds up tremendously, even if it doesn’t seem like much at first.
2. WHERE to use a credit card?
Another benefit of credit cards is that they often provide loyalty points, discounts or other rewards every time you use them. And, they feature a higher level of security and financial protection than debit cards, so you have a buffer against fraudulent transactions and other losses.
Choose a credit card that offers rewards on transactions you make frequently or spend a lot on. For instance, apply for a credit card that collects airline miles if you travel a lot, or one with discounts at grocery stores where you do all your shopping. You can actually end up saving a lot with the right rewards card!
If you can get a card with no-interest EMI, use it to spread out the cost of buying home appliances, electronics, and other large purchases. In some cases, you may even get additional protection over and above the manufacturer’s warranty.
3. WHEN to use a credit card?
Unlike a debit card, where money is instantly deducted from your account, credit card transactions are usually uploaded in batches. Even with a notification right after swiping, there may be a gap between the time of purchase and the time it actually gets charged to your card.
This “window” gives you extra protection against fraudulent transactions, since you are not liable for transactions that haven’t been properly authorized. When you’re travelling, shopping online or making a big purchase, you should definitely use a credit card to pay for your shopping and expenses.
Use credit cards when you travel, to protect against ticket/booking cancellations, flight or train changes, card theft, ATM fraud, etc. And when you face the month-end crunch, using a credit card to pay bills or other expenses can tide you over till payday.
Before you apply for a credit card, make sure to compare all the options available. And if you want a complete solution, check out MoneyTap’s personal line of credit.