How to Use Your Credit Card Responsibly and Avoid Debt
There’s a lot to like about credit cards, as they offer lucrative opportunities to earn rewards and improve your credit score. However, if not used responsibly, facilities like EMI conversion or a credit card loan can lead you into a spiral of debt.
Avoiding financial stress is easy when you know how to enjoy a card’s benefits to the fullest. This starts right from choosing the card and understanding its features to setting a budget. Here are some easy ways to go about it.
Choose a Credit Card that Suits Your Purchases
All credit cards are not designed the same. While they differ based on credit card interest charges and joining fees, some may be more suitable for certain types of purchases than others.
Choosing a credit card that offers rewards, cashback, points, or air miles depending on your spending behaviour is crucial. For instance, if you end up making most purchases online, look for a card that offers more rewards on online usage as well as on retailers that you shop from regularly.
Understand the Terms and Conditions
Fees and features vary depending on the card you choose. These terms and conditions affect how easily you can repay your bills. The following are the things you need to watch out for:
- Check the annual percentage rate (APR), as it directly impacts how much interest unpaid balances would attract
- Review the interest-free period, which is the number of days you get to clear your balance.
- Assess the tenure and interest rate applied to a credit card loan as well as charges for prepaying.
- Get clarity on any hidden charges, including late payment fees, forex markup and more.
- Review the rewards redemption fee and when points may expire
- Learn about spending milestones you need to reach to waive off joining or annual fees
Spend on Needs Rather Than Wants
When you have easy access to credit, it is tempting to think of buying everything you wish for. However, it is prudent to remember that using credit cards isn’t free from consequences. By restricting your transactions to only what you can afford, it will be easier for you to pay credit card bills on time.
The best way to go about this is to set a budget. For instance, you could divide transactions into:
- Utility bills like rent, mobile recharge, etc
- Entertainment, like dining out, ordering food online, movie tickets, etc
- Travel, such as buying tickets, booking cabs for daily commute, etc
Know Your Credit Limit
The credit limit is the amount of money you can spend in a month. Exceeding this limit can attract penalties. If you card issuer over the over-limit facility, it is in your best interest to de-activate it.
Keep in mind that using more than 30-40% of your limit can also hurt your credit score. By setting a limit on how much you use your card, you can avoid overusing your card and falling into debt. This also helps you build a good credit score.
Pay Off Your Balance on Time
The primary rule of owning a credit card is to pay your monthly bills on time. This helps you avoid late payment charges. More importantly, it eliminates high credit card interest charges from accumulating. This happens only when you fail to pay the outstanding balance within the interest-free period.
Set Up Account Alerts
You can avoid missing bill payment as well as your credit card loan EMIs by opting for an auto-pay facility. Other reminders can also come to your aid, such as:
- SMS and email alerts to track your spending
- Email alerts when your due date is approaching
- Notifications when you are approaching your credit limit, which is offered by some issuers
Check Your Credit Card Statements & Notifications Regularly
To keep from overusing your card or missing out on deadlines, read your monthly statements carefully. Many credit card issuers or applications also send a notification to your mobile whenever a transaction is approved.
Checking them protects you from financial fraud, as you can immediately contact the credit card company if you see anything out of the ordinary.
Credit cards are powerful financial tools that allow you to transact easily and enjoy various lifestyle benefits. However, they require careful management and discipline. Fortunately, some cards, like the One Credit Card, allow you to manage all transactions wisely.
Use its app to set budgets for different spending categories, view your balance, and keep an eye on your credit card loan or EMIs too. Get 5X rewards, a range of offers on fuel, travel, shopping and more. This card comes with zero joining fee, annual fee and rewards redemption fee too! Apply now and use your card confidently.
