Credit card usage guide: The trend of credit card is increasing rapidly, especially among the youth. From online shopping to emergency funding, the credit card has emerged as a very useful financial tool. However, if it is not used wisely, it can be trapped in the debt and interest trap. In such a situation, it is very important to know these 6 things before taking a credit card:
1. Credit Limit: A fixed limit of expenditure
Each credit card has a maximum expenditure limit, called credit limit. For example, if the limit of your card is ₹ 50 thousand, then you can spend up to ₹ 50 thousand from it. Excess transactions are not possible. However, you can increase the credit limit later.
2. Utilization ratio: direct impact on credit score
How much of your total limit are spending, it is called the credit utilization ratio. Experts recommend that this ratio should be less than 30%. This means that if your credit limit is ₹ 50 thousand, then in an ideal situation you should not use more than ₹ 15 thousand in a cycle.
3. Credit score improves with timely payment
If you pay your card bill before time or on time, then your credit score is better. It can provide more limit cards, loans at cheap interest rates and other financial advantages in future.
4. Use interest-free period wisely
Credit cards usually get an interest-free period of 45 to 50 days. If the entire arrears are repaid during this time, then there is no interest. But if the arrears are left after this period, then it may levy an annual interest of up to 35–40%.
5. Only “Minimum DU” will have to be heavily paid
Card companies also show minimum payment amount in the bill, which is a small part of the total arrears. But only repaying this amount is not prudent. By doing this, the rest of the arrears continue to be charged, due to which the debt can increase rapidly.
6. Avoid cash withdrawal
Cash money can be withdrawn through ATMs from a credit card, but it immediately levies more interest. Also, cash withdrawal fees are also collected. Therefore, as much as possible, it should be avoided to use this option.
Also read: How much will be the value of ₹ 1 crore after 50 years, what is the way to avoid inflation?