What not to do with a Credit Card

Pitfalls you must avoid with your Credit card to get the most out of it

With all the bad press that plastic has been getting lately, the only saving grace is perhaps its ubiquitous appearance in the form of credit cards. Credit cards are an essential – if not indispensable – facet of personal finance. It is the ideal way to enhance your credit rating and a great way to inculcate financial responsibility. However, some individuals construe credit cards as a source of funds when broke. They seem okay with being charged exorbitantly for this privilege. Though not incorrect, this view certainly is flawed. It leads to complacency regarding credit cards, which eventually leads to detrimental outcomes. 

That lackadaisical perspective can lead to multiple pitfalls, which are listed below: 

The Catch-22 of minimum payment

Often, individuals, will gladly accept and pay the minimum amount they owe on their credit card. But humans are a bit short-sighted. It seems simple to max out the card and yet pay just a fraction of the amount. But here's the fine print: The interest charged on the credit card will soon make you feel like Antonio to their Shylock. This high interest charged on the pending amount accumulates each month and should be a giant red flag. Hopefully, after reading this, that will change. 

The lazy use of plastic

Are you one of those who shamelessly flaunt their credit card even to the vegetable vendor, hoping he has a card machine? Please exercise more control and use credit cards for meatier payments. Everyday purchases should ideally not be made on credit. This is because of the interest that accumulates on each purchase. Why use a credit card to buy milk worth Rs 60 when it eventually costs you around Rs 70? Also, why fill your account with a thousand small transactions that make it difficult to keep track of your spending? Use credit cards wisely and for purchases that do justice to the credit card. (This is not an elitist statement, more of a pragmatic one).

The reward chase

Rewards are a significant aspect of credit cards, a sweetener to the deal. But rewards should never be the REASON to have a credit card. The formulaic nature of such rewards should discourage you from obsessing over them. Still, human stubbornness is unparalleled. The math on this is solid. You will not outsmart the credit card company by enhancing your reward prospects. You may feel like you have, but your billing cycle will consistently prove otherwise. Instead, treat the reward for what it is – a lovely gift that can be integrated into the system if you are a consistent user. 

It does not exist if I can't see it

Sadly, this is the take of quite a few people regarding credit card debt. It includes those who would rather settle the debt in the next month when they feel they will control their financial situation. Either way, the only warning that can be provided to you is CUMULATIVE HIGH INTEREST. The debt will get bigger the longer you ignore it. If not dealt with immediately, expect to be thoroughly defeated by it eventually. Also, assuming that the credit card's fine print has not been read, the interest rate charged may shoot up if the debt accumulates beyond a certain threshold. 

Over the edge

The credit limit is not a gentle reminder nor a vague guideline. It is a very real limit reflecting the maximum amount that the credit card user can avail of. It is arrived at after thoroughly studying the financial history of the user. In other words, that limit is not arbitrary; it is an honest reflection of your ability to pay and the amount of debt you can take on. Again, the limit does not mean you always have to hit that limit – much less exceed it. If you are tempted to, please remember that most credit cards charge an over-limit fee as well. And yet, maxing out on a card seems to be a normal phenomenon for many. Your credit rating takes a hit, your debt increases, your liquidity for the month decreases. So, respect the limit by keeping it within your sight. 

I will pay eventually

Delayed payments are another issue. Imagine – you feel you have lived up to your end of the deal (though slower than expected), and yet you are penalized for it! Penalized by having your credit score affected, by ensuring that your chances for upgrading the limit and the rewards on your credit card also take (much) longer, and by enduring the ever-present interest rate. Avoid this at all costs. Plan a little better by keeping a tab on your finances; this should take no more than 15 minutes every day.

Who reads the T&C anyway?

Well, you should, without a doubt. It could help you save money you didn't even know you were going to lose. Credit card companies have many rules regarding payment, interest charges under different scenarios, the treatment of debt, etc. What's more, due to the competitive nature of the credit card industry, these factors could vary from card to card and from company to company. So read everything carefully and understand the boundaries you need to set for yourself while using your credit card. 

Last words

Credit cards, if used intelligently, can offer you supreme convenience and peace of mind. Used recklessly, however, they can blow up in your face. Pay heed to the points mentioned above, and you will be blessed with a good credit score, better financial awareness, and consistent liquidity.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.