5 Rules for using credit Cards

Credit cards can be a boon or a bane for your financial health. It has revolutionized the way of spending money in todays world. Today, when i travel, i have very limited amount of cash in my pocket, i basically just use my credit card for hotels, flight tickets and any other purchases.

Two days ago, i heard a story from a very senior collegue. We were all meeting outside for a two day workout. When he reached the toll road, he realized that he had no money in his pocket. He was luckily able to scrape out Rs 83 to pay for the toll else he would have been stuck. He was found borrowing some money from people in the offsite. Not surprisingly, most of us also had only a limited amount of cash in our pockets.

So, the idea of this post is to understand how we should ensure that we use the power of our credit cards to the best possible means- without hurting our finances.

1. Understand the amount of interest that the credit card company charges. Yes,  i know that credit cards come with zero lifetime fees. But, seriously did you think that they gave away the annual charges? Of course not, what ALL credit card companies did is to increase the monthly interest rates if you dont pay the dues to at least cover for the annual fees.

what this means is that the earlier card would have had say a 2.5% interest rate per month, and now the Free for life card has a 3% per month interest rate.

2. Realize the billing dates and the credit periods of your cards.

Usually when one use the credit card, one gets around 0-55 days of free credit. The credit usually starts post the billing date. So, if you make a purchase just after the billing date, one can enjoy a free period of 55 days and if one makes a transaction one day before the billing date, one has only 15 days of credit period ( before the due date).

So, have two credit cards which you usually use. Understand the billing cycles and if possible eep these fairly apart so as to have options of using your credit period fully. Use the card which is furthest away from the billing date to make use of the credit period ( remember, one now earns daily interest for the money in the bank , each day counts!)

3. Pay your bills in full.

Automate your finances, put a reminder in your phone or your diary, whatever you do just ensure that you pay your bills in full at least a day in advance of your bill date! The rate of interest is too high to make this mistake.
Because of me automating this feature, money goes out of my bank immediately as it gets due. No worries, no hassles and huge amount of savings because of me being focussed in this rule.

4. Track your expenses.

Sometimes when the bill comes it comes with a shock. Every few months i find that i have used my credit card a little too freely. It is always best to track your expenses and unbilled credit usage at least once a week.

Break up the expenses to get a better understanding of where you are spending your money.

5. Use your reward points

Earlier, i found that i let a few of my rewards points lapse. However , nowdays every month i check if any of my points are going to expire. If they are , i try and redeem it immediately.

Sometimes there are some good offers that credit card companies give out on reward points- " Get 2X on every purchase". At that time , i ensure that i use those credit cards where these offers are available.

It is important to have a credit card. I am not in the group which asks people to not use their credit cards. I prefer to be careful and use them wisely and believe so should you.

Happy investing.

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