Using Credit Card with discretion

That piece of plastic in your wallet can be a blessing, depending on how you use it. It can get you great deals. It can let you monitor your spending and thus help with budgeting. It can be a savior in a cash emergency. A credit card not only lets you shop on-and offline, but also lets you earn rewards and discounts. There is a reason most middle class people has a credit card and the benefits are manifold. All the positive points are subject to user’s discretion and ethics of the company issuing credit cards.

There are several other advantages. A credit card is easier to carry in your wallet than hard cash, you get interest free credit for around 45 days, one of the biggest benefits your credit card offers you and a family member can get a free add on card. This looks good when the credit card company adheres to the terms and conditions of interest and not levying false late fee and over limit spending charges in their statements. The writer had such repeated experiences with a leading bank like standard Chartered and can prove it in their statements. Only when taken up they have reversed the same. One should go through their statements and carefully scrutinize the same.

Making big-ticket purchases is easy with a credit card. You don’t need to pay up front for that home theatre system you’ve had your eye on. Just swipe your card and take it home. You don’t even need to pay the entire amount at one go. You can convert it into equated monthly installments. But there’s a price to pay-an interest rate that could be as high as 50% a year!!!

In a financial emergency, your card can come in handy to get cash from an ATM. But be sure it’s really an emergency, because cash on a credit card is expensive-there is a Rs350 fee plus3.5% interest per day. Also the amount you can withdraw depends on your credit limit.

Some cards offer reward points on purchases. You can accumulate these and redeem them later. Of late, co-branded cards have gained popularity. Card issuers tie up with reputed brands to distribute products and services at attractive rates for a niche audience. Based on your buying habits, you can pick from petro cards, shopping, entertainment, and the like. Many cards have cash back offers. A percentage of what you spend during a given period is credited back to your card.

Several cards offer free insurance that usually covers rail, road and air accidents, accident related hospitalization, and so on. But it’s important to read the fine print carefully, and to ensure that you have adequate cover.

Always keep track of your billing cycle. This is the time period-about 30 days-from one billing date to the next. All transactions made during this period will show up in your bill.

If you paid only part of your outstanding balance last month, the remainder, plus new purchases and finance charges, will all appear in your next statement. For instance, suppose you made purchases worth Rs30,000 in October, and paid only the minimum amount due of Rs1,500. Then suppose you made purchases in November worth Rs5,000. At the end of the November you would be paying your previous balance (Rs28,500), plus interest, a late payment fee and penalties, plus the amount of your new purchases (Rs5,000) and interest on it.

Making a partial payments and rolling over balances is called revolving credit something to avoid. Always pay up entirely, otherwise you’ll end up paying up to 50% interest per year on the outstanding amount.

Credit cards are safer than cash. If you lose your card, just inform your bank as soon as possible. You are not liable for unauthorized transactions that occur after you reported the loss.

Always scan your credit card statements for unauthorized transactions. If you have been defrauded, contact the card issuer immediately. If the bank can’t resolve it, approach the banking ombudsman.

A credit card is a useful budgeting tool, and offers other benefits. Pick your card or items based on your lifestyle needs. And use it carefully.