A credit card can always give you the timely financial help you need when you experience a cash crunch. While it is crucial to ensure that the card is properly used to manage your expenses, some treat it as an additional income. Most of us fail to understand the interest rates, hidden charges, terms and conditions associated with the card that can eventually lead to a debt trap.
It is best advised to not own too many credit cards. You should bear in mind that the interest rates on credit cards are always higher than any other financial products. When you have more than 5 to 6 cards, you will end up paying annual fees and the interest rates owning multiple cards can drain you financially.
People always get tempted to buy more cards due to their promotional offers, reward programmes, and benefits. You can enjoy the reward programmes and benefits when you have fewer credit cards too. The reward points accumulated on your card can add to your savings. However, when you borrow credit using all your cards, the reward points carry less prominence than the mounting debt.
Therefore, it is always better to have limited number of cards. Although some of these cards may not have any additional benefits or promotions, the interest rates on certain cards are quite low. Having such cards will best help meet your financial needs without incurring high charges.
Many banks offer promotions which are valid only for a limited period. For instance, if the bank gives you a promotional balance transfer offer at 0% interest, you will need to check the duration of the offer before opting for this facility. If the offer has expired, you will end up paying regular interest rates which are high.
Every bank will have their own terms and conditions. Promotional offers on most cards will usually last for about 6 months or a maximum term of up to 1 year. You will need to get thorough understanding of the conditions before using any promotional facility. Credit card interest rates are always higher than other financial products.
If you have opted for a credit card through promotions (at an earlier time) which had 15% annual interest charges, you will need to go back and check again. This is because every year new conditions or clauses may be added to your card. Even the annual fee waiver may include a clause stating that certain amount of card spends are necessary in order to get a waiver.
With so many cards offering a variety of benefits, perks, and rewards, you may be tempted to apply and use the card for your shopping needs. Before applying for a credit card, you will need to first analyse your needs to check whether the card suits your lifestyle.
Even if you have the right card that suits your lifestyle, you will need to have an action plan to repay the debts quickly. A credit card when misused for unnecessary spends can drain you financially.
Many of us have the tendency to only pay the minimum amount that we owe to the bank instead of clearing the balances in full. You will need to keep in mind that have credit cards have annual interest rate that ranges from 24% to 28%.
By only making partial payments, outstanding balances will start to grow exponentially at a compounding interest rate. While you always have the option to either pay the full amount or in easy monthly repayments, the best practice is to clear your outstanding balances in full to avoid additional interest charges.
While most of us use cards for our daily shopping needs, we often tend to forget to check the due date on which the amount must be paid. By checking your credit card bill, you can ensure that you pay your bills before the due date.
If you have opted for automatic payments through your bank, you will need to make sure that there are sufficient funds in your account and that the date and time are correct. Late payments will also attract a fee and affect your credit score.
If you frequently fail to pay your bills on time, you may incur additional interest charges and also get a poor credit score that may result in future loan rejections.
When you have multiple cards, it is crucial to keep a track of your spends. You need to check your credit card bills to determine whether you have been charged correctly. Cards that are misplaced or lost may be used for fraudulent purposes. This means that others may misuse your card and you may be billed for the same. In such scenarios, you will get a duration of 45 to 60 days to claim any disputes that may arise.
In case, you do not check your monthly statements, do not report the mismatched purchases, you are liable to pay the amount to the card.
Every credit card will have a credit limit. If you try to swipe your card beyond this limit, your card may either be declined at the establishment at which you are using it or the card may be processed resulting in an over limit fee. Therefore, you will need to keep a watch over your credit limit. You can always track your credit limit online or at the time when you receive your monthly statement from the bank.
When you notice that you are close to exhausting your credit limit, you should ideally repay your dues in full or at least partially. By doing so, your credit limit on your card will be restored again.
Credit cards often come up with lucrative offers and benefits that are tempting. However, you should be disciplined with respect to your card spends if you wish to avoid paying any unnecessary charges on your card.
If you are using your credit card for mere temptation and indulgence, this may be the right time to stop your shopping spree. Impulsive purchases from multiple cards can often open a debt trap and land you in unnecessary financial crisis. You will need to carefully manage your card spends and keep a track of your monthly budget to stay away from this trap.