Most of the credit card holders doesn’t know how to use credit card properly. There are a lot of people among us who run away seeing credit cards fearing that it will spoil them by making them spendthrift. The reality is that credit card is neither a curse nor a money pouring machine but it all depends on how you use it. Understanding credit card better and knowing how to use credit card wisely will keep you satisfied.
How to Use Credit Card?
Important thing is that there is no interest for the amount of purchases made using credit card for about 45 to 51 days. For example, a person makes purchase on July 5, which is the cutoff date for credit card statement processing. The amount payable for this purchase is on July 25th, which means that he gets a credit without interest for a period of 20 days (from July 5 to July 25).
If a person makes a purchase using credit card on July 6th, the repayment date for this purchase is not on July 25 but on August 25. That is – he gets credit without interest for a maximum of 50 days. You can enjoy the benefit of “credit without interest” to the maximum, if you calculate the credit card processing date and make purchases. Understanding the credit card has got other benefits too.
Every credit card company maintains their own billing cycle and they differ from one another. So, if you understand the grace period carefully, you can enjoy lots of benefits without interest in so many things. Generally, a person can buy two credit cards from two different credit card companies. It would be beneficial if these cards’ billing cycle falls on dates 15 and 30. Here is where your knowledge of how to use credit card wisely plays.
During festival seasons like New Year, Christmas, Diwali including other festivals you get 5 to 10% cash back offers for the credit card purchases that you make. If you get huge bonus and wish to buy household items, you can use your credit card for these purchases. You can deposit your bonus amount either in savings account or can invest in short-term liquid mutual funds and can redeem it during the repayment time for your credit card. Through this short-term investment you can earn interests. During this period you don’t have to pay interest for the household items that you had bought (follow the grace period carefully).
But never ever make purchases based on your future incomes and expectations. In case, if you fail to get the expected income on the expected date, you will end up paying huge interest. Moreover, during this offer you should buy only necessary household items and not unnecessary products.
Most of the time the cash back offers are given only for purchases made for certain amount or above. For example: They might say 10% as cash back offer but will also say that Rs. 500 is the maximum offer in a month. If you make a purchase of Rs. 50,000 and get cash back of Rs. 500, then the discount is not 10% but just 1%. It is very important to notice all these details carefully.
Credit Card Loan
Facility is there to get emergency loan using credit card. It is more or less like a personal loan. The only difference is that you don’t have to produce any document. But the interest for the loan amount will be more than a personal loan. Processing fee is also applicable. The loan has to be repaid in monthly installments. The penalty will be high to foreclose the loan.
Money during Emergency
You can take cash using the credit card during emergencies. However, the minimum transaction charges for these amounts are between Rs. 250 to Rs. 500. For example, taking cash of Rs. 1000 will have a transaction charge of Rs. 250 which is 25%. The interests will be calculated from the day of your cash withdrawal. Until the repayment, the interest will be calculated. These are all some important occasions where you’ll have to wisely learn how to use credit card.
Additional facilities are available to make payments through credit cards for insurance premium, telephone bills, electricity bill, train ticket booking etc. To use these facilities, please check whether it has any additional transaction charges or not.
Credit card companies are providing reward points to encourage the customers to use their credit cards more. These points are calculated on the basis of 1 point for Rs. 100. Again, this will change from bank to bank. If you get more reward points, either you’ll get discounts on purchases or ticket bookings etc. If you make all your purchases using your credit card you’ll be getting a huge profit from the reward points itself.
Understanding credit cards properly and learning thoroughly on how to use credit card wisely will keep you worry-free. Credit cards can be a very good financial friend for anyone if it is used systematically.