There is no denying the fact that using a credit card offers a considerable amount of comfort to the users. But using it indiscriminately is riddled with too many lacunae. So, when you apply for a credit card, make sure that you are aware of the key considerations to avoid pushing yourself into what could turn out to be a debt trap.
Before you apply for a credit card, make sure that you genuinely need it. After all, it is not a free money. The test to verify is this: if your income surpasses your expenses by a minimum of 30 to 40 percent, then you can go for a credit card. It means you will be able to pay your credit card bills on time.
On the contrary, if you are applying for a credit card merely to meet the deficit of income against your expenses then it is not advisable. Borrowing now and paying later without intending to pay is akin to kicking the can down the road.
Let us take a look at the key factors you need to consider before buying a credit card:
1. Limit on the number of cards: When you apply for a credit card, make sure you don’t have too many credit cards already. And if you have, you need to have a strong reason to apply for the latest card now.
2. Reward points: Credit cards also offer some reward points that increase with the card usage. These reward points are of two types. First, what you get after using the card at fuel pumps and flight tickets. If you are not a frequent traveller, it is better to choose a credit card that offers reward points on every purchase you make.
Credit card user should also ensure that the accumulated points can be spent on any product or service, and not only among a list of products shared by the credit card company.
3 Minimum charges: The charges that the card company levies on a user can be one among many factors to consider before choosing one credit card over others. If the reward points and other savings fall short of the card expenses then it makes no sense to opt for that card. Instead, one can choose another card that has a lower annual charges.
4. Upgrading of card: From time to time, credit card company offers to upgrade the card to a higher value. That is another temptation to spend a higher amount. In case you don’t need that higher spend, you should refrain from opting for it.
5. Using more than one card: It’s not uncommon to use one credit card to make payment for another. This way, you can get longer time to clear your dues. But to be able to do this, a card user must ensure that this postponement of payment is okay for a few weeks but this can’t go on forever. Eventually, you will have to clear your dues.
6. Safety of card details: Since the usage of credit card has been rising for quite some time, it becomes prone to misuse. So, it is advised that users use the masked identity of these credit cards so as to restrain the online merchants from saving the card details on their servers.
As a matter of fact, all online merchants are now mandated to give the option of tokenisation to all credit card users from Sept 30 onwards. Some merchants such as Swiggy, Uber, Cred and MakeMyTrip have already started offering tokenised transactions.
So, prospective and current card users should be aware of these factors so that they make an optimum use of credit cards and spare falling into a debt trap.