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Home » Personal Finance » How to make your credit card work for you smartly!

In our day to day life, everyone suggests us not to use the Credit card. You must have come across the guy in shopping malls or outside the office,  who tells you the credit card benefits or offers and fills the form on behalf of you to apply for their credit card.

Do you know, Credit card can charge you more than 36% interest per year?

Since bank charges are high, You will definitely be going to avoid use Credit card. But in this Article, I will tell you the ways, you can smartly use your Credit card and make it work for you without going in debt.

There is a misconception about the credit card payment, If we use it we will be overcharged always. This is not true. Let’s understand, How can we smartly save our money.

Use your credit card to earn you some interest on your money:

Credit card statements are generated monthly and the due date to pay the money back is normally 20 days after the credit card statement generation. It means you get 30 + 20 = 50 days to pay back the money without any interest charge. 

Every bank gives you at least 45 days ( Depends on the bank, It can be more) interest-free loan up to your credit limit if previous outstandings are clear. 

Suppose, You need to purchase something worth Rs 30,000 and you have 30K in the bank, Just use your credit card rather than your debit card or cash to buy. Now, pay the credit card bill amount just before due date. This way you can get 45 days time to pay your money and you will earn some interest in your saving account as well on that money for 45 days.

If you are in emergency and cash is not available to you

Sometimes we get stuck in the situation, where need the urgent money such as to pay operation bills at the hospital but we do not have the amount in bank currently. Make use your credit card limit but repay this money before the due date.

If you want to do a big purchase

Plan this purchase on next day of statement generation to get the maximum number of days benefit for interest-free loan from the bank. These numbers of days will reduce as the next statement date comes nearer. So purchase accordingly to maximize the benefit. You can opt for No cost EMI if it is available and costing you same as in lump sum payment. No Cost EMI will let you earn interest in your saving account on your remaining outstanding amount.

Never Get trapped in Minimum pay

In Credit card statement, It shows two balance 1) Minimum due 2) Total due. Minimum due is nothing but the interest on total amount + little percentage of outstanding. If you pay Minimum due, then outstanding will remain the same and the bank will start charging you 36% interest on remaining outstanding amount starting from the spending day.

As an example, My bank generates statement on the 20th of every month. 21 October I bought TV which cost me 25000 Rs. On 20th Nov, Bank will be generating the statement with Minimum due let’s say 10,000 and total due 25000. Due date is 10th Dec. Here if I pay the minimum due 10,000 on 10 Dec then 15k remains outstanding. Now next month bank will charge me 36% per annum interest on remaining 15k from 21st Oct onwards when I spent that amount.

Note that, Interest in this example will be charged from 1st day(21st Oct) when I bought TV not from the due date(10 Dec or end of the interest-free day) after my minimum due payment. This way you will be very paying high interest. If you keep on paying the minimum due amount in successive months, then that day will not be far when you will be paying interest more than your actual purchasing cost.

So always avoid minimum due pay and clear your outstanding amount every month.

Already got trapped with a big amount and cannot pay full outstanding monthly

Don’t worry, If you are paying high interest and not able to see any source of income to pay full outstanding for each month. Just take up a personal loan and pay your monthly credit card bill from personal loan money. It will reduce the burden of the high-interest rate on your head.

Normally, Personal loans are available in a range of 11% – 15 % interest rate. So its always recommended paying 15 % interest rather than paying 36% interest on your credit card.

EMI conversion

If the amount is big, Banks offer EMI conversion to all your outstanding. Let’s say, bank offer you to pay 50,000 is one month with 36% flat per annum interest rate or 5000 per month with 36% reduced rate of interest, what will you choose. Obviously, you will go for the monthly instalment. just wait for a second, did you check how much money you are paying in both condition?

For this, you need some calculation. Actually, you have to calculate the effective interest rate of return. Flat interest calculated on the total principal amount and reduced interest calculated on the remaining principal amount. In most cases, reduced interest is beneficial.

If you buy a car loan, they will tell you the effective rate of return but they will ask you to pay 2 or 3 months EMI in advance, it will also increase effective IRR.

Zero cost EMI

Company give zero cost EMI to you but eat the discount and provide it to your bank. So make sure, you are not getting the product on discounted price anywhere else before opting zero cost EMI.

How many cards should we use?

Normally some people use 4 or 5 cards just to transfer the payment from one card to other card and get more time for actual payment. This is not the correct way. More cards mean more charges as Annual charges, transaction charges, default charges etc. It will increase your spending habit and you have to make payment in the end from your bank only where you may not be able to pay total outstanding. I recommend using at most 2 credit cards.

Day by day our spending is increasing and we are misusing our credits card. We do not follow the smart ways to use it and get punished with high-interest payment charges. Just follow the above rules and make your credit card your friend in need.

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2 Comments

Dheeraj Upadhyay · October 25, 2018 at 10:25 pm

Great information !!

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