We all know what Credit Cards are, and if you don’t, the Oxford Dictionary provides a straightforward and helpful definition:
A small plastic card that allows somebody to get goods or services without using money. You usually receive a bill once a month for what you have bought.
Fabulous, wouldn’t you agree? The first line is everybody’s desire- the ability to buy whatever you want if you do not have any money! You don't need money to buy goods and stuff if you have a credit card. Simply go to the shop or any store and purchase whatever you want!
Unfortunately, therein lies the gimmick- the Trojan horse delivered to your gates, a gift so amazing, it would be nuts not to fling open your gates and wheel it in. But there is a catch.
There is always a catch! Our minds either completely skip or ignore the line that says we must pay back whatever we buy with a credit card.
There is no avoiding or escaping it! If you don’t pay back, you will face the consequences. And trust me, these consequences are dire. But, more on that later in in the book
Do not get me wrong, Credit Cards are essential, and you may have one or two if you can use them responsibly. Being responsible means using them when required, not wishfully delving yourself into the miseries of debt. I currently have two credit cards, and I find them my faithful companions often.
I use them for all my online purchases, domestic or international, paying my contractors and virtual assistants residing in different countries, and buying and renewing subscriptions to magazines and services.
Also, they help me pay my utility bills every month on different dates. These are beautiful services. I get to enjoy owning credit cards.
I never have and would never have a credit card problem, and this isn’t because I am some monk with the divine power to control my need for material things.
This is because I hacked a way to control my use of credit cards- and this is what I will be sharing with you in this chapter.
What are the total dues and minimum amount due in the statement balance?
The total amount due is what you have spent through a credit card in a specific billing cycle. And the minimum amount due is a certain percentage of the total amount due. My credit card has a minimum due amount of around 5-6% of the total amount due. It could be any amount fixed by the credit card issuer.
There are a few things to be noted here: the minimum due amount covers only the interest charges, and this is the amount you must pay to waive any late fee and maintain your credit score.
If you don't pay it, your credit history will suffer, and you may be designated as a defaulter. There are also hefty charges on outstanding amounts. So, make sure to pay the total amount due.
One of the most significant drawbacks of paying only the minimum due amount is that you will have a mountain of debt with very high-interest rates in the long run. And once you fall prey to it, you will kill your credit score.
According to the Hindu Business Line, there are close to 23 billion dollars worth of credit cards outstanding in January 2023, which has grown by 30% within a year.
What is India's standard interest rate on outstanding credit card amounts?
It can be anything from 13-36% per annum. Read and learn all the crucial clauses of your credit card brochure before using your credit card.
Which Bank has wonderful credit cards to offer?
Irrespective of the bank, If you find a good deal, you should go for it. I recently enrolled for a new credit card from a small bank where I don't even have an account. I got some excellent features in it which my existing card does not have, e.g., using railway lounges and some more complimentary usages of airport lounges. I even got a Priority Pass subscription, making me eligible to use international lounges worldwide.
So, check the features of credit cards and learn about them. However, ensure whatever features a credit card comes with benefit you.
What is the billing Cycle?
Usually, you get the bill for your credit card once a month. I get my credit card bill on the 19th of each month with a due date of the 7th-8th of next month.
So, I get approximately 15- 45 free time to pay off my outstanding amount. If you responsibly use credit cards, this is a beautiful feature.
You can activate the auto-pay function and pay all your credit card dues on time. But, the autopay function works If your credit card is issued from a bank where you have an account.
You must maintain enough balance in your bank account to pay your outstanding bills. If you have multiple credit cards from different issuers, it is better to join CRED to keep track of your unpaid bills.
How many credit cards should I have?
You can have as many credit cards as you want, as there is no law against it. But will it help you? Owning more than 2-3 cards will not help you anyway.
For the last four years, I have had only one major credit card and maintained an 839 CRIF Credit Score, which comes under the special category. Owning more cards would take a heavy toll on my credit score.
What is the limit of a Credit Card?
Usually, your card has two types of credit limits: cash withdrawal and online shopping limits. If you use your card well and pay off all your dues on time, you will get options to increase your limit.
Increasing credit limits is another marketing gimmick to lure customers into spending more and purchasing high-end value items. When you buy high-end values, you often opt for EMI (equated monthly installments), an excellent way for credit card issuers to earn more from the card issued.
Avoid falling prey to such marketing gimmicks; choosing even 0 cost, EMI will harm your credit scores.
Also, keep cash from your credit card as much as possible because it will be more costly with the cash advance fee charges, which range from 2.5-5%, depending on card issuers.
Here are some quick tips for using your credit card smartly.
1. Avoid using cash withdrawals from your credit card.
2. Try to have at most 2-3 cards.
3. You must know all the charges related to your credit card.
4. You must have a file where you have saved all the essential contact details in case your card is lost, abused by someone, or unverified transactions are done from your card.
5. You must not use more than 30% of your credit card limit to maintain a healthy credit score.
6. Avoid activating no-interest EMIs and 0-interest loan gimmicks.
7. Always pay off all your dues within months. It is also better to pay your outstanding before the due date.
8. Get a card that offers no joining and annual fees.
The Horror Story of Credit Card User- Someone I Knew Personally
There are many horror stories of credit card users- people who use their credit cards irresponsibly and have to pay for their indulgence, sometimes with their life. One of my friends had a habit of collecting cards from many banks and recklessly spent money like he would not pay back.
After months of not paying, he was consistently rebuked by a collection agency. My friend killed himself to escape the pressure.
The daily hounding by the collection agency drove him to this point. Unfortunately, he isn’t the first and wouldn’t be the last.
But you would never endure this pressure because you will use your credit card as I taught you, right?