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Before BNPL came along and made the buying experience invisible, it was credit cards that started shaping the shopping paradigm of people. Powered by an immense purchasing capacity, people got hooked to the idea of instant credit-based transactions.
An Economic Times report mentions that within the financial year 2018 – 19, consumers in India spent a whopping Rs. 6 lakh crore through credit card transactions only. The ability to make purchases without having to pay cash brought the general public closer to credit cards, coupled with huge discounts and rewards.
But it’s important to remember that a credit card is much more than a cash substitute. This uninterrupted buying experience often makes us overlook this factor, leading to unforeseen additional charges, debt traps and other potential risks.
In this article, we will discuss some important aspects to keep in mind the next time you swipe your card.
1. Have a budget in mind
Create a budget and stick to it. Yes, credit cards can be empowering, but without having any bar on your spending and, they might turn overwhelming.
If impulsive spending becomes synonymous with credit card usage, it starts taking a toll on your financial health. A comprehensive budget planning gives you an idea of how much you should spend and lets you manage your expenses accordingly.
2. Know when you can pay and stick to it
Alongside having a specific budget, it is also important to have a far-sighted notion of your financial conditions. So, let’s say, you borrow a lump sum on your credit card this month without taking into account the expenses of the upcoming months. The result is increased interests or securing an even larger loan to pay off the debts.
This is a financial backtrack you don’t want, hence, be mindful of when you need to pay and ensure you pay it right then.
3. Be mindful of cash withdrawal charges
Cash withdrawal charges often vary from one bank to the other. Therefore, before it starts becoming a hidden cost on all your withdrawal transactions, make sure you are thorough with all the related charges.
4. ‘Read the offer documents carefully before investing’
Credit cards are often replete with lucrative discounts and cashback offers but with certain conditions. This is why it’s extremely important to carefully sift through all the rules and terms of availing a particular discount instead of making a rash transaction. Not all offers may be beneficial for you and only a sharp observer can walk the line between what the costs seem and what they turn out to be in reality.
5. Check credit statements, be aware of your credit score, and of course, due dates
Keeping a regular track of your expense prevents any kind of surprises at the end of the month. While most people tend to avoid this, this is a healthy practice you must get involved in as soon as you can.
And talking about healthy practices, never forget to pay heed to your credit score. It is a numerical representation of how well you manage your debts and loan repayments. In India, low credit scores often spell a death knell for furnishing loans at lower interest rates.
While different countries have various kinds of incentives for good credit scores, in India it is synonymous with smooth approval of loans as well as securing higher ceilings on your credit. A good credit score reflects banks’ faith on your ability to repay a loan.
So, always pay off your debts on time.
6. Explore efficient EMI options when making purchases
EMIs are a highly efficient and flexible way of repaying loans as it divides a large sum into smaller instalments. First, it helps you maintain a definite budget for your expenses. Second, EMIs come with lower interest rates. Third, and this is the main gamechanger, it relieves you of the payback anxiety as you are confident in your ways of spending and borrowing.
The only downside here that you need to take care of is to not exceed your limit of borrowing, as that would again disrupt your fine-tuned balance between budget and expenditure.
Credit cards are used quite often by many users given its benefits but we must also remember that with credit cards, there are charges and costs that can take us by surprise if we aren’t mindful of them.Therefore, consistent monthly paybacks of loans is the harbinger of sound financial health. Added to this is exploring the hidden costs carefully before making any purchase, and keeping a detailed track of all your expenses. So, the next time you swipe your credit card, do so with all these points in mind.