With a credit cards, you get a short-term loan that you can pay for purchasing something, but you eventually have to pay it by the end of your billing cycle. If not paid, they can lead to hefty interest rates and other charges. That is why credit cards are notorious for making people habitual of overspending and dragging them into debt. However, little do they know that wise use of these financial tools can actually help you boost your finances. Let us see how.
Benefits of Using a Credit Card
You get several benefits using a credit card:
Easy access to credit:
Functioning on a deferred payment system, you purchase using your credit card now and pay for it later. The money you pay does not get deducted from your bank account. It is a form of short-term credit you get to make your purchases. Therefore, your savings do not reduce every time you swipe your card.
Opportunity to Build Credit:
Credit score plays a crucial role in building your credit history, which lenders refer to while scanning your loan application. With wise usage and regular bill payments, you can build your credit and improve your credit score.
A credit card allows you to make a big-ticket expense without sinking your savings. You can make your purchase now and pay for its price in EMIs. You are not forced to pay the entire bill amount in one go. If you want to pay it in EMIs, you can spend as much as possible and the remaining amount with concurrent credit card bills. However, the credit card issuer will levy an interest rate on the outstanding balance.
Tips to Use Credit Cards Wisely
Planning to apply for your first credit card? Know these tips for using it wisely:
When you have easy access to credit with your credit card, you may easily feel motivated to spend more than what you can afford. However, don’t forget that you have to pay the amount back to the credit card company eventually. So, buy only what you can afford and be sure that you can pay its price in the next few months. Otherwise, the credit card balance will keep building up, and you will be caught in a never-ending debt trap.
Pay Credit Card Bills Before the Due Date:
Using your credit card and paying its bills on time will help your credit profile improve over time. A good credit portfolio also makes a range of extra benefits available to you, such as increased credit limit, easy loan availability, higher credit score, and additional rewards.
Time Your Purchases:
Credit cards have a billing cycle that you must be aware of. Identify your bill generation date and time your purchases to make the best use of your interest-free period. For instance, if you purchase something just after your bill generation, you may enjoy up to 45 days of no interest.
Credit cards often come with a wide range of discounts, offers, and rewards. Go through your card’s booklet and find any deals that are useful to you, such as priority check-ins and lounge access at the airports. Accumulating reward points may also fetch several benefits over time, ranging from movie vouchers and discounted electronics to free flight tickets and hotel accommodation.
Monitor Your Credit Card Usage:
Credit card bills are like bank statements that contain each expense you made using your card. You can study your bills and track your expenses to identify where you are spending money unnecessarily. This will help you create a budget and manage your finances well.
If you pay multiple credit card bills and EMIs each month, it’s easy to forget some payments on time. A possible solution for this would be to activate e-mandate. When you do that, the bill amount is automatically deducted from your bank account before the due date, thereby maintaining consistency with your bill payments. However, use this facility only if you are sure you can maintain a sufficient balance in your bank account at all times.
Are you planning to apply for a credit card? Compare providers and know your options to get a credit card according to your needs. However, be sure to use it wisely to gain maximum benefit from it.
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