Things to Keep in Mind While Using a Credit Card

The average debt of a credit card user is increasing at an alarming rate today. According to the RBI data, in May 2016 the total credit card outstanding amount was recorded at Rs. 42,100 crores although in 2008 it was just Rs. 27,000 crores.

The increase in credit card debt in today’s era is mainly contributed towards lack of awareness and irresponsible credit usage.

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If you are new to using credit cards or an old user who wants to develop good credit card habits, then be sure to keep the following points in mind:

1. Minimum Payments
   If you don’t want to or are unable to pay your credit card bill in full, then you can make a “minimum payment” which is usually about 5% of the amount. However, this only avoids penalties. Since the remaining amount is carried over to the next month, your overall debt continues to increase. If you stick to paying “minimum payments” on a consistent basis then it can lead to high debt accumulation because of the interest that it collects (usually 3% to 4%). So, it’s important to consider minimum payments only as a last resort and not a convenient option.
2. Credit Usage
   Your credit card usage also affects your credit report. If you tend to spend more than 35% of the credit every month, then your credit rating can be damaged.

   So, if the credit limit on your card is Rs. 1 lakh, then try to spend less than Rs. 35,000 on average per month.

3. Cash Withdrawals
   Many people are not aware that cash withdrawals with credit cards attract a transaction fee (which can be as high as 4%). So, unless you have a compelling reason you should arrange funds through other means such as debit card withdrawals, cheques, or directly from your account using a withdrawal slip at your branch.
4. Overseas Usage
   When you are in a foreign country then your international credit card can be extremely helpful when you need the currency of that country. However, international transactions attract a super high fee. So, it’s best if you carry enough foreign currency with your when you travel. You can even exchange your domestic currency at the currency exchange centers.

Remember, credit cards have their advantages but they must be used wisely. Credit card debt is easy to get but extremely difficult to get rid of.