Credit cards can be a useful tool to manage your finances and build your credit history. They allow individuals to make purchases without making upfront payments, instead allowing them to borrow from a lender and repay later. Due to their array of benefits like cashback and rewards, credit cards have become an integral part of personal finance. However, since credit cards allow individuals to purchase items with money they do not have at that moment, they are high-interest debts. You must use credit cards responsibly to reap their benefits.
How do credit cards help you save money?
If you use credit cards effectively, they can help you save a lot of money. Here’s how:
- Choose the right credit card: The first step to saving money using credit cards is to pick the right one based on your needs. Lifestyle credit cards are ideal for dining and entertainment purposes, travel cards offer lounge access, airline miles, and discounts on hotel accommodations, while co-branded credit cards offer extra discounts if you purchase items from their partnered merchants.
- Redeem your credit card benefits: Most credit cards offer benefits like extended warranty, price protection, cashback rewards, and discounts on credit card purchases. Some credit card companies may offer special rewards if you purchase products from certain online retailers. There are other credit cards that offer points when you buy groceries or gas, going the extra mile in helping you save money on everyday expenses.
- Use the welcome bonus: When you purchase a credit card for the first time, you will get welcome vouchers, bonuses, extra discounts, or rewards. In some credit card companies, the annual joining fee is waived if you make a certain amount of purchases on your card. This is why, during the first year, you must put most of your expenses on your credit card to reap all these benefits.
- Avoid revolving credit: Credit cards offer a useful facility called revolving credit. If your total credit card expenditure is INR 15,000 and the minimum amount due is INR 4000. You may pay INR 4000 and carry over the remaining INR 11,000 to the next month. It is a savior if you have a financial crunch for one month, however, it comes at the cost of additional expenses. For every day that your revolving balance is unpaid, interest is accrued on them.
- Take advantage of 0% APR: If you do a credit card balance transfer, implying that you combine all your credit card charges in one card, you may enjoy 0% APR. This facility allows you to make purchases or pay off your credit during a specific time frame without any interest charges. Make sure to pay enough balance every month to bring back your credit balance to zero within the 0% APR period. You can also use this opportunity to make big-ticket purchases.
- Use the price protection benefits: Most credit cards offer reimbursement charges if you receive a damaged product or your product gets stolen within a certain time frame. If a product’s price drops soon after you bought it, you may reach out to your credit card company and get the additional costs reimbursed. Understand what kind of benefits your type of credit card or your lender offers to make use of them.
- Use credit card balance transfer: If you have multiple credit cards and you are finding it difficult to keep track of them, you can do a credit balance transfer and shift all your loans into one card. You can take advantage of the 0% APR period and pay off your balance without taking on hefty interest additions.
- Pay your credit card bills on time: The best way to ensure that you do not overspend or rack up a credit card debt is to pay your bills on time. You can track your expenses to make sure that you have enough funds at the end of the month to pay your credit card dues in full. You can also automate your payments, provided that you have enough money in your account to avoid missing deadlines.
Are credit cards a necessity?
While credit cards are not exactly a necessity, there are several advantages of owning a credit card for day-to-day expenses.
- Building credit: Credit cards establish a record of your purchasing history and repayment capacity. When you use your credit card responsibly, make on-time payments, and use less credit than what’s available, it positively impacts your credit scores. A good CIBIL score is of utmost importance when applying for loans, renting apartments, and even for some job applications.
- Convenience: Credit cards eliminate the need for cash, hence it is much safer and easy to use. Most department stores and merchants including restaurants, hotels, and online retailers accept credit cards. Since credit cards are also accepted internationally, they are a good payment option when traveling abroad.
- Credit card reward points: If you use credit cards frequently for daily expenses, you can enjoy perks like credit card reward points, cashback on credit cards, and discounts on credit card purchases. Credit card companies also offer different types of credit cards to be used specifically to rack up airline miles or to buy goods online.
- Fraud protection: Credit cards are an excellent form of protection against online fraudulent transactions. If your credit card gets stolen and you report it immediately, you can get those charges removed from your account. Check your credit statements every now and then and see if the merchant names are correct. In case of any discrepancy, you can inform your credit card company to fix these errors.
- Emergency loans: If you need some funds urgently or need to cover some medical expenses and do not have the time to apply for and sanction loans, credit cards are a great alternative. However, keep in mind that credit card loans charge higher interest than other bank loans, so you must repay their monthly settlements on time.
- Purchase protection: Credit cards are more secure than debit cards because they offer purchase protection, which can help you recover funds in case your card gets stolen. Some credit cards also offer extended warranties on eligible purchases. You can also enjoy privileges like returning an item if they are damaged within a certain period if you made the purchase using a credit card. If any unauthorized purchases are made using your credit card, you can ask your company to redeem them.
While credit cards offer many benefits, it is important to keep in mind that they are high-interest debts. You must pay your balance in full before their deadlines to maintain a healthy credit score. If you let credit card debt pile up, it could turn into an impossible financial headache. For more tips on how to manage credit card debt, which type of credit card to choose, and how to build one’s credit score, you can head to the official website of ApnaPaisa. You can also consult any of their experienced finance professionals to help you manage your credit card expenses.