A credit card is, often, seen as that magic card that you flash at a merchant point of sale (POS) and get what you desire. (of course, as much as credit limit allows). It’s a great feeling. A feeling of financial freedom and liberation. A feeling of having the power to buy things instantly and pay for them after you receive your salary. Instant gratification – if I must sum it up in one word (alright, two words!)
But, with this power comes great responsibility. It calls for financial discipline and prudence on paying the bills. A lackadaisical approach to paying the credit card bill could lay undue stress on your credit score, which in turn could lead to difficulties in raising more capital when you need it for bigger purchases in life, such as buying a home.
Let’s talk about a few wise steps that can help you enjoy the perks of a credit card and aid you to maintain an excellent financial record.
1. Don’t fall for the “peacock syndrome”: My friend bought an i-phone, let me buy the latest version and go one-up. This unnecessary display of riches and a consequent one-upmanship syndrome often called “peacock syndrome”, can lead a person to buy things which he doesn’t need, often using his credit card. He later realizes that it has put too much strain on his salary and he won’t be able to repay it, so he ends up paying a hefty interest and late payment fees. This can ruffle the peacock’s feathers over time.
2. Payback on time: It is great to enjoy the power of the credit card, but it is equally important to pay back before the due date. If a person must do this every month, all throughout the year, he should follow point no. 3 religiously.
3. Keep track of your expenses, using the credit card: How much has your credit card bill accumulated for the current billing cycle. Well, almost 99% of the people who use credit cards wouldn’t know this. It’s only when the bill gets generated that you understand what your actual “spend” is. And, then comes the stark realization that you need more money than you have in hand, just to pay the bill. You do not want to be in such a situation. Refrain from it. Track your expenses made using your credit card every time you use it.
4. Check your monthly credit card statement: The thrill and joy of owning a credit card often cloud a person’s rationale. He might have, more often than not, gone for a card, without understanding the late payment charges, or any hidden fees, or interest rate charged for card usage. By checking your statement, you may come across charges which you may not understand. It is your right to call the customer care number of the credit card company and clear any ambiguity. This would help you to not repeat the mistakes or if necessary, surrender the card after paying your dues.
And before you do all this, get the credit card right… wondering how?
5. Do your research, find a card that gives an ideal interest rate, credit limit and a host of offers that can help you save on your hobbies:
If you are a movie maniac and your credit card gives you a host of offers on food, it may not help you much, right? If you are not a frequent air traveller, will it help if you get a discount or waiver at airport lounges? Also, what’s the point of having a credit limit of 5 Lakhs if your disposable income per month is not even 30,000?
So, do your research before getting the card. Every bank/credit card issuer will have a card for you, but does it suit you? If you love watching movies and have an itching need to go to the theatre every weekend, select a credit card that can give you discounts on purchase of movie tickets and help you save money. After doing a research, you can always apply for a credit card online.
The Golden tip:
Start a practice of calculating how much money you have saved on the card. For example: If you saved 25% on a movie ticket, jot it down. If you saved Rs. 500 on shopping, write it down as well. Compute how much you have saved on the card. Is it significantly more than the annual card charges that you end up paying? If yes, then it is worth keeping it in your wallet.