Using a credit card? Remember these six rules to use your credit card effectively

• Follow

Simply swipe, spend, repay and enjoy! Life would have been so amazing if using a credit card would be so simple. Though using a credit card is not that simple, but it’s not even too complicated to not use. While it may prove to be a double-edged sword for those who do not know how to use it or who misuse it, it can also prove to be a life saviour, a good money management tool and the best credit-building instrument for those who use it effectively.

If you have received your first credit card and are planning to use it for the first time, always remember that convenience comes at a cost. So, never forget these six rules to use your credit card effectively and avoiding falling into a debt trap.

1. Never Miss the Payment Deadline & Pay the Dues In Full –

If you have not activated the auto-debit feature, then always remember the payment deadline and pay the full due amount because, if you miss the payment deadline, you may have to pay a late fee or penalty along with an interest of approximately 36% to 48% on the outstanding bill amount. And if you fail to pay the total amount including the outstanding amount, late fee and interest, it will be added to your next credit bill and this will eventually affect your credit score and lead you to fall deeper and deeper into the debt trap.

2. Remember, Needs Are Limited but Wants & Wishes Are Unlimited 

Having the ease of buying expensive things right at the moment and getting time to repay for it never fails to tempt people to get carried away and overspend on exotic wishes. Once you go overboard with the spending on your credit card and fail to pay it back on time, you will end up either disturbing your regular spending & saving budget or becoming a defaulter with an added load of late fees, penalty and interest.

3. Don’t Forget, Too Much of Anything Is Not Good

As a credit card can be the best credit-building tool, it doesn’t mean you start using it to the fullest. Even though you are using it to its full limit and paying back the dues on time, it may lead to a negative impact on your credit score instead of improving it as it may present you as a credit hungry person who is extensively dependent on the credit card for almost all the expenses. 

4. Smartly Use the Rewards You Receive by Using Your Credit Card

In order to entice the new users to buy credit cards along with their existing users to increase the usage, the credit card companies offer you several benefits like cashback, additional discounts, cash redemption, hotel vouchers, airline vouchers, air miles, airport lounge access and more.

This may either lead you to overspend or may help you save on your regular expenses. As it’s always better to end up on the latter side, it becomes extremely important to control your desires to spend on unwanted things only to earn points or rewards and instead, stick to buying the things you regularly buy.  

5. Never Withdraw Cash or Take Any Loan Against Your Credit Card 

Sometimes, financial emergencies may lead you to make wrong decisions by thinking about temporarily addressing the situation and solving it later. Withdrawing cash using your credit card or taking a loan against your credit card are a couple of examples of wrong decisions which financial emergencies may lead you to make. Choosing these options may surely help you to manage the emergency, but the charges, fees and interest structure that the company applies on such transactions make the repayment amount appear infinite and never-ending even after you pay the regular instalments. So, always ensure that no matter what, never withdraw cash using your credit card or take a loan against it.

6. Always Use Your Credit Card in Well-Reputed and Trusted Places

Thanks to the easily accessible information, technology and sophisticated hardware, the incidents of credit card cloning, information storing, CVV leak, pin tracing and OTP hacking have increased a lot. So, whenever you decide to use your credit card at any hotel, restaurant, retail outlet, fuel station, salon, spa or any other place, make sure that the machine, merchant or retailer is genuine, untampered and trustworthy.  

So, now that you know the most important rules of using a credit card, make sure that you always recollect them each time to plan to swipe your credit card and never fall into the debt trap.

(The article is authored by Manish P Hingar, Founder, Fintoo)