Getting the most of your credit card

The Dilbert comic creator, Scott Adams, calls credit cards the crack cocaine of the financial world. I couldn’t agree more. While credit cards provide great convenience, the instant gratification they provide comes at a price. Don’t be a slave to your card. Rather make it work for you.

Firstly, choose a card based on your requirements and not for all the benefits. For example, a card may provide access to golf courses or discounts on dining, but if you are not going to use these offers, there is no point choosing such cards. You also need to read the fine print carefully. Most cards provide a pass to access airport lounges, but in most cases, only the membership is complimentary. You would need to pay a fee of $32 per person for using the lounges overseas. Similarly, I find the concierge services on the cards expensive and not so useful. If the card provides benefits like lost card liability or personal accident insurance, you need to check for the terms and conditions. A good way to decide the card to have would be basis the annual fees and reward points calculation. Keep the number of cards to a maximum of three.

Once you have taken the card, ensure you pay off bills on time. This is because credit card utilisation and timely payment of bills has a huge impact on your credit score. Typically, utilising up to 40-50% of your credit limit in a month is considered fine. While it is easy to swipe the card for every purchase, the moment you pay late, a hefty interest of 3-3.5% per month is charged on the amount outstanding. You don’t want to pay 36% extra for the item which you may have purchased online on a discount! Pay on time and do not use the credit card for withdrawing cash.

Also keep a check on unused or old cards. Close such cards as having too many cards active means you are using a lot of credit. While the credit card companies typically decide credit limits, it is a good idea to keep the limit up to what you are comfortable with and need. A card may come with ₹5 lakh limit which may get revised upwards regularly on the basis of your usage and timely payments, but if you are not comfortable, don’t go for the increase in credit limit.

You could be one of those who does all purchases on a card or one who doesn’t use the card except for emergencies. Either way, ensure you use the card only to the amount, which you have in your savings account. It is also advisable to set up a direct debit for the credit card payment so that you don’t miss paying the monthly bills.

Use reward points as a cash credit(back to the card to adjust against your payments) instead of spending them on insignificant purchases simply because you are accumulating points. It is good to also spend points quickly as points become less valuable quickly. For example, if an airline ticket costed 15,000 points two years ago, it now requires more than 20,000 points.

While travelling abroad, carrying a travel card with pre-loaded international currency is a better option over a credit card. This is because the conversion rate spread between the foreign currency and Indian rupee is more on the credit card versus that on a travel card. With a travel card, one is also more in control of one’s expenses. You do not need to carry all your credit cards while travelling abroad. A travel card along with one credit card should suffice. It is not advisable to use credit cards in some countries due to credit card skimming. Hence, check for such advisory before you travel.

Beware of phishing calls where you get a call or an email asking for card details like CVV. Typical callers would talk to you about doubling your reward points or increasing credit limit for which you would need to give your financial information.

If you can’t get yourself to control spending on credit cards, you are probably better off without it.

After all, your life needs to be more than paying bills.

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*Photo credit: Hindustan Times

Source: Article written by Mrin Agarwal in Hindustan Times on Feb 25, 2019

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