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There is no denying the fact that owning a credit card does offer financial freedom. But, along with freedom, it is important that you are well-versed with how the credit card should be managed and handled smartly. If you are a first-time credit card user, the odds of misusing and abusing of your credit card are quite high. It has been noticed that all those teenagers who get their first credit card from their parents are most likely to fall prey to the lure of free money which most of the times leads to a debt trap via undirected usage. In order to use a credit card judiciously, it is important you are mature and have an apt understanding of how it functions.
#1. Strict Budget
The key reason for overspending, while handling a credit card, is the easy availability of the credit card. With such a careless spending, it can really spell disaster for all the financial plans you have. Moreover, people tend to overspend as they are not being asked to pay upfront.
You don’t have to be an Einstein to make out that this is not a healthy trend. Ideally, as a first-time credit card user, you should have a strict budget and most importantly stick to it. You should also have your mobile number registered with your credit card company so that you will be notified about the actual balance and credit limit so it is much easier for you to keep a track of all your expenses. You should decide on a monthly limit for usage depending on the financial situation and adhere to it.
#2. Credit Limit
When you get your first credit card, your credit card company decides a certain credit limit for you on the basis of your repayment capacity. However, in due course of time taking into account your usage, payment discipline, income increase, credit card companies will try their best to lure you to enhance your credit limit.
Though a higher credit limit will allow you to buy more lavish products, having said that it can also land you in serious trouble with debt. As per the experts, you should not opt for increasing your credit limit for the first year of usage, so that you are familiar with all the credit card billings and get familiar with all the implications completely. When you take a decision to increase your credit limit, it is important that it is equivalent to the increase in your annual salary.
#3. Full Payment
The credit card bill will contain your due, due date, and the minimum payable amount. As a first-time credit card user, you are not aware of the concept of minimum balance and as per financial experts, it is one of the most misleading features of the credit card. While by paying the minimum balance, you can carry on using the facilities, this also means extra interest on the due balance.
Generally, credit card companies charge near about 1.5%-3% on the outstanding amount. If you fail to make the payment for the due amount in the scheduled time, you will have a much higher bill for the subsequent month. Rollovers to the next month will also have a negative effect on your credit score later on.
#4. Security Of The Credit Card
There are two important aspects of a credit card that should be protected. First one is the cash advance PIN number and the second one is CVV number. Ensuring the utmost security of the credit card, make sure you have not disclosed these two numbers to anyone. You can see the CVV number printed on the back side of the credit card.
Another security measure comprises of making sure that you don’t become a victim of skimming whenever you hand over your card at the cash counter while shopping. In addition, if you are a frequent online shopper, make sure you use your credit card only at the authorized and legitimate portals. The right procedure is a two-step method that is usually followed by all credit card companies, which need confirmation such as verified by Visa password that is messaged to you once. Make sure your payment gateway asks you this password while doing online transactions.
#5. Cash Advance
This facility should, ideally, be used as your last available option and not as a regular feature. In most of the cases, the interest rate levied on the cash advances are high at around 30% per annum. The interest rate is calculated from the moment you take the money and it continues to be compounded till the time you have cleared the amount. If you make any slip up in the payment, it can incur high-interest payments.
Even though, this facility should be used as a standby option for the emergency money, make sure you have used this option with utmost care.
#6. Don’t Overlook The Annual Charges
Usually, credit card companies levy certain annual charges or maintenance charges for using the credit card. The levied amount as annual charges can vary from bank to bank as well as the type of credit card you are using. If you are having a high-end credit card, the annual maintenance charges can go up to thousands of rupees each year. Most of the times, the credit card companies choose to waive off these charges in the initial years or in case the credit card spending has increased the decided limit. As a credit card applicant, it is important you have taken your time to compare the annual charges of different credit cards before you make a final credit card selection.