Five ways to maximize your benefits from credit cards

Naveen KukrejaPaisabazaar.comCredit cards have become an indispensible tool in today’s financial life. Apart from providing immediate fillip to your financial shortfall, it allows you to effectively manage your cash flow and earn reward points, cashbacks, discounts, air-miles and vouchers on your spends. If used well, paying with a credit card can actually put some money back in your wallet. Here is my short take on how you can maximize the benefits from your credit card: Choose credit card with maximum discount and cash back offers: Each credit card focuses on specific kind of transactions and offer higher discount, reward points or cash back offers on them. It is important for you to analyze your spending pattern and choose a card which offers maximum benefits on your major expenditure heads. For example, if your job profile requires you to travel frequently, then you may consider settling for an air miles card such as HDFC Allmiles Card or Standard Chartered Emirates Platinum Card. Similarly, if you commute long distances on your vehicle, then use Standard Chartered Super Value Titanium card (offers additional 2.5% cashback apart from the 2.5% fuel charge waiver) for refueling your vehicle. Have more than one card in your wallet: Credit cards usually limit the number of reward points that can be earned during a particular billing cycle. Having another card will ensure that you continue to earn reward points or other benefits even if you cross the limit on your primary credit card. Also, it comes handy for improving your credit score by reducing your credit utilization ratio. Remember, owning multiple credit cards makes sense only if you are financially disciplined and can take care of multiple bills and due dates. Also, avoid having more than 3-4 credit cards as it can bring down your credit score in case of higher outstanding balance.Keep track of your reward points and redeem them before they expire: The reward points of the credit cards do not last forever. At some point, they expire. For example, reward points of HDFC credit cards are valid for only 2 years from the date of transaction. Similarly, the reward points of Axis Bank credit cards expire after 3 years of earning those points. Thus, make sure to go through the reward point rules and redeem these points before their expiry. Maximise your benefits from interest-free credit period: Credit cards typically offer interest-free credit period on credit card transactions in the range of 15–50 days. This period refers to the time between date of transaction and the due date of paying it back. During this period, no interest is charged on your transaction, provided you repay your entire outstanding by the bill due date. To make it simpler, assume that your billing cycle starts from 5th of every month and your due date falls on 24th of every month. Now, if you make a transaction on September 7, your billing date will fall on October 4 and you can repay it back by October 24, without paying any interest for it. In this case, you can enjoy an ‘interest-free period’ of up to 48 days. However, if you make a transaction on September 30, your due date will still be October 24. In this case, your interest free period works out to be just 24 days. Thus, always go for big-ticket card spends at the beginning of your billing cycle. This will get you more time to repay your dues. Similarly, if you have two or more credit cards with different due dates, distribute your transactions in such a way that all them fall in the beginning of the billing cycle of one card or another.Pay your entire dues, not just minimum due: Credit Card issuers allow you to pay a minimum amount by the due date, which is usually a small fraction of the total outstanding. However, most credit card users believe that on paying the minimum due amount, interest on the unpaid amount is waived off. However, in reality, the outstanding amount will still attract high finance charges, usually in the range of 35–45% per annum. The only charge that you will be spared from is the late payment fee. Moreover, non-payment or part-payment also leads to the withdrawal of interest free period and reduction of your credit score. Thus, always ensure to pay to off entire dues, and not just the minimum amount. To sum it up, if handled well, a credit card can be a great asset. All that you need is to analyze your own spending habits and route your transactions accordingly through credit cards. Plan your large-ticket spends on the basis of billing cycle(s) and be aware of the changes in their reward points programme. And lastly, spend what you can pay back and as you pay back, make sure to do it in entirety.