How to manage your credit card effectively

how to manage a credit card

Updated on: November 5, 2009 17:39 IST

A credit card is a useful tool, when managed judiciously but a lurking danger if you mismanage it. Currently, threatened by the global financial crisis banks are changing credit limits, doing away with interest free periods and charging higher interest rates on the credit borrowed.

One of the first things you need to keep in mind is to read the terms and conditions when you apply for a credit card. It could be a laborious process but something that has to be dealt with, to protect yourself from any rude surprises that might be in store in times like this.

One hears stories of money being taken from the savings account of a person who has a credit card with that particular bank! Well, banks are allowed to do so, when a default occurs, the clause is covered in the terms and conditions. Banks also have an auto debit facility to claim a minimum payment on credit borrowed, if in case your account does not have enough funds, banks are allowed to levy a fine, which varies from bank to bank. So ensure you always have sufficient funds, when you opt for the auto debit facility to cover your minimum payment due.

Profit from your credit card!

Credit cards can be useful when you make a profit out of it! Now, how is that possible? Well, it all depends on the kind of card you purchase, its best to opt for a lifetime free credit card that does not have an annual fee attached. Also get a card that matches your lifestyle. If you shop a lot, see that your card offers a lot of discounts and cash back rewards for all the shopping you do with your card. If your job allows you to make frequent trips, get a card that gives you several travel friendly schemes on eating out, hotel stays and airline ticket discounts.

How to manage your credit card effectively

Updated on: November 5, 2009 17:39 IST

H igh interest rates

Though the whole point of having a credit card is to provide you with cashless convenience, it makes money sense to decide, when, how and why you should use it. Never get tangled in the web of debt, especially when it comes to credit cards. Though its an ideal resource to tap into, when you need to ramp up funds quickly, the interest rates charged on a credit card are much higher than even those charged on personal loans. Remember that cash withdrawals from an ATM with your credit card will be charged a processing fee of around 2 per cent and an even higher rate of interest than your regular purchases on the card.

Taking a loan on your credit card

Most credit cards do offer an EMI facility to pay any loan you take on your credit limit. It normally takes just one or two business days to obtain this loan and this can even be arranged over the phone with no documentation. However, the difference lies in the high interest rate charged, which can be an annualized interest rate of around 30-42 per cent. The cards that offer a comparatively lower interest rate in the range of 22-26 per cent most often do not have an EMI facility for repayments.

Though credit cards seem like a good bet for short term fund requirements, refrain from using it unless you can make the credit card usage count for some kind of benefit. Using your credit card purchases for an interest free period is fine, however remember the bank can do away with interest free periods anytime it chooses to and also hike the interest rates, according to its free will. Hence, be wary of a credit card and use it sensibly.

Another important aspect in managing your credit card is to keep a careful tab on your credit card statement, and make sure that it reaches you on a monthly basis.

How to manage your credit card effectively

Updated on: November 5, 2009 17:39 IST

U nderstanding your credit card statement


Category: Credit

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