How to use your Credit Card smartly?

A small rectangular piece of plastic, the size of your business card, nesting inside that wallet has the potential of acting as a double edged sword. Known as the credit card, this piece of plastic can be wonderful when one is short of cash and needs to make an urgent purchase; on the flip side it can be near lethal and can drive you to neurotic heights when used indiscreetly.

How this sword will behave is entirely up to its owner. It can help to eliminate the risk of carrying cash during good times and can drown the card holder in debt. It is ‘you’, the owner who can choose to either reap the benefits or get scalded by the credit card. It is always better to be safe than smug.

Here are a few commonsense tips that will help transform a credit card holder to become a smart card user.

I.                   Lesser the better

‘Too much of anything is bad’. The same dictum applies to credit cards too. The greater the numbers of credit card you own the higher are the chances of over-spending. Higher spending means heavier bills at the end of the month and additional stress on your resources.

Credit cards earn points on purchases you make. These reward points can be redeemed against various options. One card will mean faster accumulation of reward points thus making it easier to redeem.

Another smart move is to widen the area of use. Using the card at different places and for buying various merchandises will save the hassle of carrying cash and also ensure an interest-free credit period for the user.

II.                Discretion is the better part of valor

Let not the credit card make one a shopaholic. Use discretion, spend consciously. Never try to make an impulsive purchase solely because the credit card is at hand. Judicious spending habits are the hallmark of an intelligent credit card user.

Try not to use the credit card for paying emergency expenses like medical bills, unless it is an absolute necessity. Rather, set aside a part of your earnings for meeting such eventualities.

III.             A stitch in time saves nine

Christopher Parker perhaps overlooked the virtues of a credit card when he said “Procrastination is like a credit card: it’s a lot of fun until you get the bill”. The smart user of the credit card will always use this procrastination to plan his expenses and pay accordingly.

It is very important to remember that paying in full and on time is the most recommended practice for using a credit card. Otherwise the fun will turn sour when interests and late fees bore a hole in the pocket of the user.

IV.             Never borrow and fetch sorrow

Borrowing cash on credit card is something one should avoid at all costs, unless it is an absolute necessity.  Drawing cash on credit card can result in a vicious debt trap. Cash withdrawals on credit cards attract transaction fees and steep interest charges which can go up to 40% per annum or more. If at all such withdrawals of substantial amount are made, it is always advisable to go in for a personal loan and repay it as it will save on interest cost.

V.                Limit Credit to stay within credit limit

The credit limit is the maximum amount one is allowed to spend on a credit card. Always monitor the amount of credit that is accumulating based on the spending pattern. Remember that at the end of the interest free period repayment has to be made in order to avoid paying more. Paying the minimum amount due is a dangerous practice as one can ending up repaying many times more than the original spend made.

VI.             Read between the lines

The long and often boring literature containing the terms and conditions of credit card usage are often never read. It is imperative that a credit card user reads and comprehends the terms of use thoroughly to avoid jolts in future. Reading the fine print is essential as they often contain information which the user may not be aware of. Free offers and discounts should also be examined before making any commitment or purchase.

VII.          Keep safe to stay safe

Always ensure that your credit card and PIN are kept safely. Never lend the card or share your PIN to/with someone even if you know him well. Always remember to take back the card after it has been swiped at any establishment. While making online transactions make sure that the site is secure and safe.

The credit card today is a ubiquitous must-carry item much like your smart phone. When used wisely the credit card can be an effective tool to schedule and monitor expenses. It depends on the individual if he wants to be a smart card user.