Author: Anil Rego

Plastic money can be a boon for many of us; however, if not used well, it can turn into a nightmare.  Here are a few tips to keep in mind to get the best out of your credit card.


Choosing a card
Take top 2-3 credit cards.  Keep in mind that having too many will be difficult to handle payments and you could forget making payments.  Look for cards which help you earn points and have features like no fuel surcharge. Multiple cards can help you take advantage of the various offers they provide.  It is important to have sufficient balance on your cards in case of emergency.

Understanding terms & conditions
Understand all the charges that could be levied - interest rate, annual fee, grace period, etc. One can opt for a credit card with no annual fee. Issuers may charge late fees, and late payments could result in a considerably higher interest rate than the advertised rate.

`Cash Back` offers may be irresistible, but this could be a great potential to overspend. Avail credit cards which have credit limit that you are comfortable with, do not opt for a higher limit which will encourage you to overspend.

Credit card usage
Online payment made through card for travel, purchases etc are most beneficial but misuse of online payments is also very high. You need to be very careful giving data on the net (make sure the site is a secure site). There could be many shops that also charge you an extra fee for making a payment by credit card.  Fuel surcharge is also applicable at most petrol bunks.  Be aware of this as it would make it costlier for you.

Credit Card Repayments
It is useful to use a credit card from the same bank where you have an account.  You can then set automatic transfers for payment of bills.  You can also use ECS payment mode so as to avoid late fees. Late fees can have a significant bearing on the overall cost of the card. Make prompt payments- this will also help you maintain a good credit rating.

Unplanned credit usage
Be careful not to get into a vicious debt trap since the interest cost on the credit card is one of the highest.  You should preferably use the same for very short term requirements of funds.  If the period is more than 3 months or so, you can consider a personal loan instead. Unplanned credit card usage affects monthly cash flows adversely.  The high interest cost reduces one's ability to repay the same quickly and would hamper your investments in order to achieve your needs.

Final Take
Credit cards can be very useful as one does not have to keep carrying cash around for you expenses.  It helps keep track of your expenses as well which may be difficult if you make cash payments.  There are a lot of life time free cards that could be used.  In addition, most credit card companies have various discounts/offers and give loyalty points that can be en-cashed for gifts.  It can be very useful in an emergency like a hospitalization.  However, someone who is not disciplined can run up huge interest costs and this can be very damaging to one's personal finances.  One must also be cautious to avoid misuse due to loss or otherwise. And read the terms and conditions- sometimes a lifetime free credit card may not be free after all!

Anil Rego is the founder and CEO of Right Horizons, an Investment Advisory and Wealth Management Company. Right Horizons has successfully practiced a de-risked model with a Contrarian approach.