The prevalence of credit cards in India has become increasingly widespread, thanks to the convenience and privileges they offer. However, the soaring interest rates and additional charges suggest that a credit card holder must be extremely cautious about how to use them. To begin with, we need to understand that in contrast to the tall claims made by the credit card companies, there is no such thing like a ‘free credit card’. In fact, for the companies it is a business proposition that is somehow meant to bring money through the entire process. Following are some Common Credit Card Mistakes You Should Avoid In India and save yourself from financial distress:
- Not paying off balance fully:This is one of the commonest things that people tend to overlook. Basically, this should not be a practice at all but going by the figures, this mistake is so common that it becomes imperative to discuss it here. It is a well known fact that credit card has the maximum interest rates compared to any other loans you take. If you throw a balance on your credit card every month, the interest rates add up quickly. To avoid paying hefty interest charges, pay off your entire credit card balance prior to the next scheduled date. This will ensure that you do not end up paying unnecessary interest on the card balance. In fact, you can put aside this extra money for investments and raise handsome funds for yourself. Talking about investments, it would be a really terrible decision if you fail to pay off the credit balance wholly and rather invest the capital in low profit investments. Understand this, if a credit card balance attracts an interest of nearly 30% every year and an investment offers a return of just 8%, then paying off the full credit card balance is a better choice that thinking of investing the money. The superfluous interest you shell out on your unpaid dues offsets any profit earnings you collect from your investment. Moreover, if you throw a balance frequently, it strongly suggests that your expenditure is beyond your earnings. This is again a terrible financial practice that you need to avoid.
- Not keeping a tab on your credit card statement: Many card holders complain of finding some unauthorized transactions made from their credit cards. Therefore, it is essential to regularly check your credit card statement. Internet banking provides you the facility to check the statement online. In case you spot some unknown charges debited from your account, contact the customer care centre of the credit card company immediately. An alert user can avoid losses by checking the statement for illegal payments and prevent credit card abuse. Keep a tab on your monthly statement or better check the transactions online so you need not wait till the completion of the billing cycle. If possible, go online once a week to ensure nobody is using the card illegally.
- Taking a credit card that is difficult to pay off: It is not uncommon to run into the risk of interest charge or late fees. This primarily happens when the process to pay off the credit card is not an easy one. You may have different credit cards with similar features but the one that is easier to pay off is definitely better. The ideal case it to have a credit card from the same bank where you hold an account. Getting the card linked online with the account is even better. It takes away the hassle to pay off the credit card balance. All that is required is to log in to the bank account through internet banking and pay off the credit balances straight away! Simplicity in payment implies that you can not only clear the dues easily but punctually too. This helps you avoid running into the risk of late payment or interest fees. So next time you think of applying for a credit card, consider the ease of payment aspect too. No matter how unimportant it seems at the moment, you do not want to regret it later in case of a delayed payment owing to a lost cheque book or blame your busy schedule for keeping you from going to the bank and depositing the cheque. To make things simpler, you can put a reminder on your phone or e-mail or even pin it to your office desk. We all get tied up with some work every now and then and these reminders can be real useful in saving late payments and interest charges.
- Taking credit cards that have an annual charge: Provided you have some special benefit planned from your credit card, there is no need to take a card that comes with an annual charge. Taking a credit card without an annual fee implies that the interest payment is the only expenditure you incur on it. Moreover, if you reimburse the card balance completely every month, you need not pay up any interest too. So, the credit card will truly be free! There is absolutely no reason to pay for something when you can have it for free. To top it all, almost every ‘free credit card’ has some or the other sort of reward or cash back program that you can take advantage of. Yet another thing to be considered while calculating the charge is the kind of benefit you can expect from the card depending upon its usage. Let us take an example of a card that comes with an annual charge of Rs. 800 and offers a maximum of 5% cash back. At first, the fee does not seem to be too much given cash back offer, but looking closely at the terms and conditions will tell you that the cash back is forwarded to the holder’s account as long as the monthly balance is above Rs.10,000. This indicates that the card is not intended for individuals who do not throw this kind of balance on their cards every month. Therefore, if you are planning to take a credit card that comes with an annual charge, ensure that you read the terms and conditions properly and are convinced that the credit card will be worth the fee.
- Using credit card at ATM: Of course, you can use your credit cards at ATMs but if it is not extremely critical, never use credit cards at ATMs. I’ll tell you why. It is a general tendency to take out cash using the credit card. It is so convenient that is makes a pretty addictive habit to treat credit card as a painless and dependable access to cash. However, this habit may prove to be a disastrous one, sooner or later. First of all, the interest fee on withdrawing cash through a credit card runs quite high, and following this habit will shoot up your outstanding balances in no time. Secondly, the advance limit on cash is generally a great deal lesser than the credit limit taken as a whole, so you won’t benefit much in the long run. Moreover, the interest will keep accumulating and swell very rapidly. Thus, taking out cash using your credit card should not be on the list at all, or at least be the last choice. More often than not, cash withdrawals accompany some advance cash charges, and these charges add up if you withdraw cash from credit card frequently. This again goes on to show an inclination to spend beyond your earnings, which means your financial fitness needs to be checked. The above-mentioned mistakes are quite common and you can easily avoid them by being cautious and logical while using your credit card.