Use your credit card sensibly to max out benefits

If you do not use your credit card properly, you can be burdened with debt. The burden of high interest rates, the tendency to pay only the minimum due and the habit of spending without thought can be very heavy on your pocket. It can have a bad effect on your financial condition. Therefore, there are some mistakes which we should avoid.

What are those mistakes, let’s find out. Along with this, let’s also understand the strategies which will help you in the right use of credit card. First of all, the mistake of paying the minimum amount due should be avoided. Minimum Amount Due is that amount, which can be paid before the last date of payment. This keeps your credit card account maintained. This is a small part of the total outstanding amount, usually 5%. But this does not mean that you should pay only the minimum amount due. If you pay only this amount, you will have to pay interest on the outstanding amount.

Many people spend a lot from their credit cards thinking that they do not have to pay now, so they end up shopping a lot. In this process, they end up spending unnecessarily. This should be avoided because you will be burdened with unnecessary debt. Do not make the mistake of withdrawing cash from credit card. With most cards, 20 to 40 percent of the total credit limit is available in cash limit.

Credit card withdrawal charge has to be paid on withdrawing cash, which can be 2.5 to 3 percent of the transaction amount. Apart from this, the interest on cash withdrawal becomes due immediately, with interest rates varying betweeen 36-48%.

Do not use the entire credit limit. Credit utilization ratio means, the part of the credit limit you have used. It is generally advised to keep it below 30 percent. High utilisation ratio will not only increase the burden of debt on you, but will also affect your credit score.

Apart from the mistakes, let’s talk about those strategies which can help in better use of credit card. First of all, decide the time of your purchase. Every credit card has a specific credit billing cycle. It is important to understand this, so that you can decide the time of your big purchases and take advantage of the extended interest free period.

For example, if you make an expensive purchase after your card bill is generated, then you will have an interest free period of 45 days. Pay the bill on time, this will help you maintain a good credit score and save you from late fee charges.

Defaulting in payment will spoil your credit score and it will cause problems in taking a loan in future. Always pay the last billed due of the credit card, as you will be saved from paying unnecessary interest rates and your credit score will also improve.

So avoid mistakes and adopt a strategy. This will help you use the credit card properly and save you from unnecessary tension.