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Aug 04, 2011, 06.38 PM IST
CREDIT cards of late have a negative connotation, and are pronounced as complete no-no by many, because of the high interest rates that are charged on late payments/defaults.
More often than not the problem is that people do not understand the product well and hence are not able to use it to their advantage.
The credit card company offers you a Ďfree credit periodí of around 50-55 days. The misconception most people have is that this free credit period is from the date of purchase. It is actually from the date of billing. For example. Mr. Anand's billing cycle date is 28th of December to 27th of Jan and his credit free period is 50 days. If his purchase was on 22nd Jan, he would enjoy credit for 25 days. However if he made the same purchase on say 1st Jan, he would enjoy credit free period of 47 days. So if you plan properly, you can enjoy maximum credit every month, which will help you manage your cash flows effectively, and will also help you earn the extra bit of interest on the cash that you have currently not spent on making the purchase.
In addition to the free credit period, every purchase made on your credit card earns you reward points which when accumulated to a big amount can be exchanged for a range of items such as electrical appliances, flight tickets, home ware etc. These rewards will differ from company to company. Also credit card companies offer discounts, promotional offers with respect to shopping, entertainment etc. For example, if you buy petrol from a particular brand of petrol pumps, you get a small percentage of money credited back to your account after a certain number of days.
For the credit card to make money for you, you need to keep two key things in mind:
So use the credit card if and only if youíre sure of having the means to pay the bills in time. Also, donít forget that your credit score will get impacted too which will impact your future borrowing.
ii. Credit Limit: Keep a tab on your credit limit. Overshooting your credit limit will also have dire consequences for you with respect to the interest charged and your credit score.
How do you ensure that your credit card makes money for you?
- Appropriate use of Bonus points: Use the bonus points that have accumulated on buying necessities (house hold appliances, clothes, groceries etc.) rather than using it on using it on things (luxuries) that arenít really important to you. Only if the bonus points are used practically, you are actually saving cash because had to now have the bonus points, you would have to anyways spend cash on buying the same.
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Tags: Credit cards
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