Credit cards have become popular among the millennial and urban population. It saves you from carrying cash all the time. Credit cards have also changed the way people look at availing a loan in India.
Unlike other loans which require documentation and paperwork, the credit card advance facility is simpler and instant as it doesn’t require any documentation or further approval from the bank. Credit cards if used properly in a disciplined manner, helps the users earn extra benefits like cash backs, reward points, and travel points which leads to some savings.
The cash advance feature of credit cards, however, comes with certain terms and conditions and should be used carefully to prevent any chaos in the budgeting. Use it judiciously, and stay out of the debt trap.
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There are a few rules you should follow when using your credit card.
- Often Credit cardholder tend to spend more than what their repayment ability is. When a person has multiple credit cards with a high credit limit, they fail to realise the amount of spending. It is suggested for the cardholders to have automatic SMS, email alerts for each credit card purchases to keep track of their spending.
- Some credit card users use their cards to withdraw cash from ATMs as the credit card cash advance allows them to do so. But you should be aware that starting from the date of withdrawal this attracts interest till the amount is paid in full. Every time you use the credit card to withdraw cash, a cash advance fee, which depends on the amount withdrawn is applied. In order to avoid this charge, use the ATM card or the debit card to withdraw cash.
- Banks levy additional charges, if you are travelling abroad and utilising your credit cards. These charges come in the form cross-currency charges which make credit cards expensive. Try using forex card instead of credit cards when they are abroad to avoid these heavy charges.
- Credit card providers offer the facility to pay a minimum amount and carry forward the remaining amount to the next month. You should always try to pay the full amount within the due date because for any reason if you miss the due date, you will have to pay an extra late fee, along with the interest.
- Usually we have the idea that paying the minimum balance will not attract any interest or late fee. However, that’s not the case and it gradually leads to a debt trap as the minimum due amount is only around 5 per cent of the outstanding dues. While you will avoid paying the total amount, you will be attracting heavy interest on the balance.
- Depending on the income and credit history, all credit cards come with a maximum spending limit. But remember that your credit score will go down if you repeatedly reach your credit card maximum limit. It will affect your ability to borrow loan in the future.
Many credit card companies and banks keep calling people with attractive credit card deals and offers, but remember that owning multiple cards can lead to over-spending. Better still, use one card at a time so as to not get carried away while spending.