This is a guest post by Pardeep Goyal, founder of CashOverflow.in. He likes sharing interesting money saving tips, passive income ideas, and ways to achieve financial freedom. So, here are some of his personal thoughts!
Credit cards can help you save thousands of rupees every year without paying any annual fees or interest charges. You can earn reward points, cash back, and discounts on your travel and regular shopping.
I have saved Rs. 1 lakh in 2018 using credit cards, but many people don’t know the side effects of credit cards.
7 Credit Card Mistakes to Avoid
Understand the power of credit cards, and avoid some common mistakes when using them online.
1. Avoid Cash Withdrawal
You have to pay high-interest rates, if you withdraw cash from credit cards. Credit cards are meant for shopping, not for cash withdrawal. When you withdraw cash using a credit card, you pay cash advance fee that is around Rs.300 to Rs.500 per transaction. You also have to pay annual interest between 35% to 42% on the withdrawn money.
In urgency, it is better to borrow money from a relative or friend & return later on, rather than withdrawing money using credit cards.
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2. International Transactions
If you don’t do international payments, then ask your bank to deactivate the international transaction facility on your credit card. You can disable international transactions through online banking or calling the customer care of the bank.
International transactions don’t require a One-Time Password (OTP) to complete the transaction. If your card gets storen, there are high chances that someone can misuse for international transactions. If you have multiple credit cards, keep only one card for international payments and deactivate this facility on the rest of the cards.
3. Credit Card Annual Fee
You may be paying annual fees on your credit card because you don’t know about the fee waiver. If you have multiple credit cards, then you are losing more money on the annual fees. You can easily get the annual fee waived off by negotiating with their customer care. Call the credit card company’s customer care and ask for the credit card annual fee waiver. If you are a regular customer, they won’t mind exempting the annual fee.
Banks & credit card companies earn money when we use their credit cards, so they don’t want to lose their customers just for the annual fees.
4. Random Use of Multiple Cards
If you have multiple credit cards and you use any card anywhere, then you are losing an opportunity to get exclusive benefits.You should use 1 credit card (that has max cashback or rewards) for your primary expenses, and the rest of the credit cards for specific purposes.
For example, you can keep 1 credit card to buy groceries, pay utility bills, and do other regular shopping. Besides, you can keep different credit cards to pay for fuel, do online shopping or travel purposes. You must know which credit card is for what purpose and then use it at the appropriate place.
5. Underutilized Premium Card
If you have a premium credit card that you don’t use regularly, then you are wasting money on paying the annual fee. Most of the premium credit cards have a high annual fee and they have a target spending to get the annual fee waiver. If your expenses are less and you are not able to fully utilize your premium card, it’s better to downgrade to a card that aligns with your spending.
6. Forget to Pay Bills on Time
You have to pay penalty charges if you don’t pay your credit card bill on or before the due date. Credit card companies also charge high interest on the outstanding bill starting from 30% up to 45%. If you always forget to pay the credit card bill, then it’s better to automate your credit card payment from your savings account. Your bank will deduct the bill amount from your account on a particular date.
You can also use a credit card payment app where you can keep a track of your credit card bills and earn points on paying through the app. Such apps give you a timely reminder about your pending bill.
Besides this, you should be aware that you may damage your CIBIL Score if you are not paying your credit on time.
7. Paying only Minimum Charges
If you pay only the minimum due amount, you can avoid finance charges. But, you have to pay interest on the outstanding amount. The debt piles up every month until you settle up the full amount. It’s better to use your credit card to a certain amount that you can easily pay next month.
Conclusion
You should avoid these mistakes to get maximum benefits from your credit card. Choose a credit card that suits your lifestyle, use a credit card to an amount that you can pay later. Above all, always pay your bills on time so that you can enjoy the perks of credit cards.