Financial Discipline With Credit Cards

Credit Card Use

What is the need for a credit card? This question often comes up in many a minds. Some say that it is better not to have a card while some say that it is better if you have a credit card. In recent times more and more transactions have been carried out in online mode digitally. Hence the use of credit cards have gone up. In this article we will discuss the ways in which we make most of the credit cards.

Gone are the days where we used to carry money in our pockets. As restrictions have been imposed on the cash transactions, it is inevitable that we either use our credit or debit cards to carry out various transactions. The advantage of having a credit card is that it offers us credit when we are out of cash. Even if we make excess purchases using credit cards, they will give us flexibility to pay the debt in easy installments.

There is a prejudiced notion in many of us that the credit cards are only for making purchases. But it is not completely true. If we learn to use credit card diligently, it will completely change our financial habits and the way we make purchases. Credit card teaches us how to spend without crossing the limits. Though the primary benefit of using credit card is the ease of making purchases, we should also focus on the following benefits that the credit cards offer to us:

1. Reward Points: Depending on the number and the volume of transactions that you make using the credit card, your credit card will allot you some reward points. You will accumulate reward points each time you use your credit card. All the accumulated reward points will be added to your account. When you reach certain number of reward points, you may redeem them and convert them into cash or make purchases using them. If you have to pay any fee for using the cards, these reward points will offset them so that your burden will be reduced.

2. Discounts: Credit card companies usually have tie-ups with lot of hotels, restaurants, car rental providers, shopping malls etc., wherein you can get some discounts on using your credit cards. Sometimes these discounts are too huge to be ignored. Hence it is important that you know beforehand the tie-ups your credit card company has with other such commercial establishments both online and offline.

3. Insurance protection: Nowadays lot of credit card companies are also providing host of insurance policies to their customers. The travel insurance is one such important insurance being offered. Normally some credit card companies offer travel insurance at zero or nominal fee which includes accidental death while travelling, delayed or cancelled trips, luggage lost while travelling etc., provided you have paid for such a travel trip using your credit card.

4. Cashback offers: Cashback offers are the new trend these with increasing number of online merchants mostly offering such huge cashback offers. Usually depending upon your usage, cashbacks up to maximum of 15% are being offered by online e-commerce sites like Amazon, Flipkart etc. You won’t get any cashback or discount when you make purchase through cash. Cashback offers on your credit card is another great incentive go for credit cards.

5. Time limit: When you make purchases through your credit card, you won’t have to shell out money immediately as typically the credit cards offer you a window of 45-60 days within which you can pay them back. This flexibility allows you to account for any contingent bills or payments without worrying about cash for such payments in the immediate period. This is really boon if you in situations where you have spend more than what you have.

6. Keeping a check on your expenses: Using credit card for your expenses gives you the additional capability to plan your budget. Once you look at the credit card bill, you will understand how much you have spent on various items. You need to differentiate them as necessary and unnecessary expenses and accordingly plan to reduce the unnecessary expenses in the next month. Thus in this way you can reduce unwanted expenses that you make.

There are few downsides to using the credit cards as well if you don’t manage them properly. If you fail to understand the working of credit cards, you are bound to make mistakes while using them. Keep the following ppoints in mind while using your credit card.

1. Check your expenses regularly: The data relating to where you use your card is important while deciding about your credit card. The card you select should offer you some incentives like discounts, cashbacks etc. For instance if you use your card mostly for paying your petrol/diesel, you should choose such a card which gives your maximum discounts or cashback offers at petrol bunks. You should also consider the number of such transactions that you make. If you make relatively more number of transactions that you make, the more benefit that your get from credit card.

2. Know your credit card limit: It is important to know how much you usually spend on purchases and other expenses and accordingly put a limit on your credit card. Keeping high limits on your cards will only make you to lose more when your cards were in case got into hands to fraudulent elements maximizing your losses. Also keeping higher limits may also rupture your financial discipline by tempting you to spend more. As per your eligibility, you will always have the flexibility of increasing your credit card limit as and when you need. Hence it is important that you keep a prudential and realistic limit on your credit card.

Finally, the ease at which we make purchases using credit cards should also be shown in making credit card bill payments in time as any lack of financial discipline in making your credit card bill payments will end up in levy of more interest and charges on us. This will affect our credit history and credit score. Even if you can not make the full payment of credit card bill, you should try to make the minimum payment on your credit card to avoid late payment fee.

Bonus tip: All your credit card bill payments in excess of ₹ 1 lakh made in cash will be reported to the Income Tax department. In addition if you make any payment towards settlement of credit card bills in excess of ₹ 10 lakhs in a financial year in any mode will also be reported to the IT department by respective banks. Avoid such excess  credit card payments else you will have more chances of your case being selected for Income Tax scrutiny assessment.

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