ATM :: Got a credit card? Think ’10’ times before using it | October 03, 2013 13:12 (IST) | NDTV Profit


New Delhi: Credit cards are as much a boon as they are a bane. Sure, they give u a sense of financial ease and security but if you don’t use your credit card prudently it can land you in a vicious debt trap.

Here are 10 situations when you should restrict the use of credit cards:

1. Using credit cards for everyday expenses: This is one of the most common instances when people use credit cards – to buy their day to day items. While using credit cards to purchase groceries and household items is not always bad, using it regularly may result in your over-spending and exceeding your monthly budget. Always draw up your budget for such purchases and use your credit cards within this limit. Beyond this, it is better to use cash or debit cards.

2. Using credit cards for cash advances: Withdrawing money from an ATM or automated teller machine through your credit card to meet emergencies is an easy way to combat cash shortage; but have you realised the impact it may cause on your finances? Not only is the interest rate charged on the advanced amount at 2.5-3.5 per cent every month, but this also gets charged from day one itself. Besides, you will also have to pay a flat transaction fee as well.

3. During the months you have restricted cash inflows: Credit cards come with a free credit period of 20-50 days. If you do not pay your bills within the due date, you will be charged a hefty late payment fee, high interest of 2.5-3.5 per cent every month and also taxes on these charges. Hence if you think you will not be able to generate cash flows to make payment on your credit card within the due date, it is best to refrain from using it.

4. Using credit cards when you travel abroad: When you use your credit card for transactions in a foreign country, you are usually required to pay a charge on foreign currency transactions. Also, do not forget the exchange rate fluctuations, which determine the amount you will have to pay. If you instead opt for a prepaid currency card, it will help you better.

5. Using credit cards only to accumulate reward points: In order to attract customers, credit card companies offer various offers and high reward points on purchases made. While accumulating reward points is good, spending on your card only for this reason is not very healthy. You will soon realise that even though you have high reward points on your card, you will have to pay hefty bills, sometimes even on unnecessary purchases made without forethought.

6. When you shop at unsecured websites: Online shopping, in recent times has become very popular. While it is a convenient way of shopping, you must refrain from using your credit card and sharing confidential information on websites which are not secure. Always check for security levels before making credit card payments in such cases.

7. When you cross your credit limit: It is best to stop using your credit card when you are close to your credit limit. This is not only good for your credit score, but also helps you keep a check on your expenditure levels.

8. When you see a discount sale: Do not use your credit card indiscriminately as soon as you see a discount sale. This is a sure shot way of you exceeding your budget and spending more than you can afford. Be prudent when you use your credit card in such situations and purchase only what you really want. When you use your card for unaffordable purchases, you will soon end up in a debt spiral, which affects your financial position gravely.

9. When you have multiple cards: When you have many credit cards, keep a note of the billing cycle and due dates of each card. Do not use the card which is closer to the billing date; instead use a card which has a farther off billing date. This will give you a higher credit period and makes more sense to your finances.

10. When you go partying or dining: When you go out partying or even for a dinner out, refrain from using your credit card, as you may end up spending more than your budget. It is always desirable to use cash or a debit cards in such situations, as it will help you keep your spending in check.

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