Card selection should be primarily based on two factors - spending pattern and comparative cost-benefit analysis
Credit cards can be an excellent tool for managing your finances and saving money if used wisely. They not only provide instant credit access but also help save money for the credit cardholders in the form of reward points, cash backs, discounts, air miles, vouchers. Here are 5 smart ways of deriving the most from credit cards -
Opt for a credit card as per your spending habits & comparative cost-benefit analysis
Card selection should be primarily based on two factors - spending pattern and comparative cost-benefit analysis. For example, assume a prospective credit cardholder spends a significant amount on travel-related expenditures like air tickets, hotel stays, etc than on shopping. Availing a travel credit card with higher benefits on travel-related expenses should get more priority than availing a cashback/reward credit card.
For conducting a comparative cost analysis, one should compare different credit card benefits offered in form of free vouchers, reward points, discounts, cashback, and numerous other lifestyle benefits; and opt for the card whose overall monetary benefits surpass its joining/annual fee by the widest margin. Note that many credit card issuers reverse or waive off annual/joining/renewal fees on exceeding the pre-set threshold amount of credit card transactions.
Plan card spends as per your interest-free credit period
Interest-free period refers to the duration between the credit card transaction date and the due date of payment. In the course of the interest-free period, card issuers do not charge any interest on transactions, provided you pay off the entire credit card outstanding amount by the due date. This interest-free period can go up to 55 days on the basis of your transaction date. To derive most from your interest-free period, aim at timing your big-ticket card transactions in the initial days of your billing cycle. Those having multiple credit cards with varying due dates can derive most of their interest-free periods by spreading their credit card transactions.
Avoid ATM withdrawals
The interest-free period available on card transactions is not applicable on ATM cash withdrawals made through credit card. Every time a credit cardholder uses his credit card to withdraw cash from ATMs, the card issuer will levy finance charges of 24-49 per cent p.a. from the day of cash withdrawals until the withdrawn amount is repaid. Moreover, the card holder will also incur cash advance fees of up to 3.5 per cent of the amount withdrawn. Finance charges clubbed with cash advance fees can massively impact one’s financial health, especially when such withdrawals are made on a regular basis.
Try to avoid withdrawing cash through your credit card in case you wish to make the most of your credit card. And in cases, if such withdrawals become unavoidable, make sure you repay the whole withdrawn amount as soon as possible to avoid the accumulation of cash advance fees and finance charges.
Convert the bill amount ( if it cannot be repaid) into EMIs
Credit card issuers offer the facility of converting the entire card bill or a part of it into EMIs. This facility is helpful for those who cannot repay their entire bill or part of it by the due date. The interest rate of such EMI conversions is much lower than steep finance charges levied on the unpaid bill amount. These EMI conversions come with a tenure of 3 to 48 months, thereby enabling the credit cardholders to choose their tenures as per their repayment capacity.
Opt for credit card EMI for big-ticket spends
Many card issuers tie-up with merchants and producers/service providers to offer no-cost EMIs on their services and merchandise. Such EMI offers are available on both online channels and offline platforms. Some card issuers also offer no-cost EMI options on select brands, merchandise, and services, wherein the interest costs are borne by merchants/manufacturers and credit cardholders are only required to repay the purchase cost in the form of EMIs. However, the GST levied on the interest component of the EMI has to be borne by the cardholder.
Some credit card issuers also offer additional discounts to their credit card users on choosing the no-cost EMI for select products or services. Such discounts can significantly reduce the purchase cost of merchandise and services.
Redeem the accumulated reward points before their expiry
As most credit card reward points come with expiry dates, ensure to keep a close watch on reward points nearing their expiry dates. Reward points closer to expiry should be used for purchasing vouchers, merchandise, or various other services from the partners listed in the credit card’s reward catalogue. Some card issuers allow their cardholders of specific cards to adjust their outstanding credit card dues against their accumulated reward points.
The author is Director, Paisabazaar.com