By OneCard | January 30, 2025
Credit cards are great financial tools that offer incredible purchasing power and unmatched convenience. With just a simple swipe or tap, we can make purchases online, in-store, or even halfway across the globe. In fact, according to the Reserve Bank of India, there were 97.9 million active credit cards in India as of December 2023. However, as the old saying goes, “With great power comes great responsibility.”
Behind this convenience lies a world of financial intricacies and possible pitfalls. That’s why it’s crucial to understand these aspects so that one can make informed decisions, enjoy the benefits that come with it, and sidestep any possible setbacks. Let’s take a deep dive into some crucial factors to be considered before swiping your credit card.
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Have you ever noticed how after the free period ends on your card, banks allow you to make a minimum payment of just the amount due? Sounds tempting, right? However, be aware that this is charged daily until you clear all outstanding balance. You’ll see this reflected in your credit card bill/statement on a monthly basis.
Over time, the interest can build up, and before you know it, you might find yourself in a financial mess. Hence, in some cases, people who don’t manage their credit card debts well, unknowingly get into a debt trap. So, enjoy the flexibility of revolving credit, but it should be used with care while monitoring spending habits.
Most credit card issuers provide cardholders with the option of converting large purchases into manageable Equated Monthly Installments (EMIs). The icing on the cake being that EMIs usually come with lower interest rates than revolving credit, typically ranging from 13 to 18% annually. While it might be tempting to split multiple big purchases into instalments, having too many EMIs simultaneously can negatively impact your finances.
To strike a balance, try to make the most of your credit card benefits without overburdening yourself. Lastly, compare offers and terms from different banks to secure the best EMI plan that fits your needs and budget.
A great feature that a card like One Credit Card has is that it also allows you to convert your bill into EMIs if you cannot pay the full amount by the due date. You will have to pay the minimum amount due, and the remaining balance will be easily transitioned into an EMI.
Also Read: When To Use Credit Card EMI and When to Avoid
While using your credit card to get cash might seem like an additional way of withdrawing cash, be mindful of the associated costs. Issuers often charge high fees and interest rates for this service. These interest rates are comparable to the high rates charged for carrying a balance on your card.
If you’re already carrying a balance on your card, cash withdrawals may prove to be even more expensive. So, carefully weigh your options and explore alternative methods before swiping your credit card for cash withdrawals.
Your credit history plays an important part in your financial well-being and greatly determines your future borrowing opportunities. Starting with responsible credit use, such as paying bills on time and maintaining a low credit utilisation ratio of under 30%, will help you build it up.
Having a mix of different types of credit, such as loans and credit cards, can also help improve your credit score. Be careful not to apply for too many new credit cards or loans at once, as this can hurt your score. Regularly check your credit report to make sure everything is accurate and to track changes.
Also Read: Credit Card Loan - What is It & How to Apply Loan on Credit Card?
Do's | Dont's | |
---|---|---|
1. | Do set spending limits and create a budget to stay on track financially. | Don’t max out your credit limit, as it can negatively affect your credit score and incur over-limit fees. |
2. | Do maximise card rewards and benefits to make the most of your credit card. | Don’t use your credit card for cash advances, as they often come with high-interest rates and fees. |
3. | Do protect your card information to prevent fraud and identity theft. | Don’t neglect your credit card statements; review them regularly for accuracy and potential fraudulent charges. |
4. | Do prioritise paying off any credit card debt before applying for loans to improve your debt-to-income ratio and increase loan approval chances. | Don't close old credit card accounts, as maintaining them open even with a zero balance can contribute to a longer credit history and a better credit score. |
To make the most of your credit cards, being aware of great features and using them responsibly is essential. By understanding revolving credit as well as EMI and cash withdrawal costs, you can avoid damaging financial potholes along the way.
So, keep track of how much you spend, seize those sweet rewards, and protect your card data. With smart choices and a watchful eye, you can harness the perks of credit cards while keeping your financial house in order and setting yourself up for a bright, stable future.
**Disclaimer: The information provided in this webpage does not, and is not intended to, constitute any kind of advice; instead, all the information available here is for general informational purposes only. FPL Technologies Private Limited and the author shall not be responsible for any direct/indirect/damages/loss incurred by the reader for making any decision based on the contents and information. Please consult your advisor before making any decision.
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