Festive seasons are usually a prime time to spend on your credit cards. People generally spend on gifts, travel, and other purchases which leads to a surge in credit card transactions during this period. These periods also come with a lot of discounts on e-commerce sites and other stores, luring customers to spend more than needed, so it is very important to remain financially disciplined.
Using credit cards for purchases during festive seasons adds reward points, but it can also lead to financial troubles if these are not used responsibly.
People make some very common credit card mistakes during such times. If you do not want your credit card to cause you financial trouble, make sure you avoid these mistakes while using your credit cards during the festive season.
Not tracking how much you spend
In a world where you can buy stuff sitting at home or with a swipe of your card, it is very easy for customers to lose count of how much they are spending. This could rake up your expenses on your credit card leading to a hefty bill that may prove difficult for you to repay. Sales and discounts can tempt people to buy unnecessary or luxury items which are not within their budget.
So it is important for people to keep a budget of how much they can spend during these times without getting too much in debt. Spend only the amount which will not be a burden to you when the time comes to payback. You should set a limit and only spend within that in order to avoid splurging.
Pay minimum amounts
It is a myth that just paying the minimum due amount every month absolves you from financial trouble. During such times since people want to shop more, so maybe due to lack of funds or in order to keep shopping, people do not pay the complete credit card bills.
It is important to remember that the interest rate on your credit card is charged on a daily basis on your credit card and it is always at the higher end. So while paying the minimum due amount will not attract late fees, the interest on your remaining amount as well as the amount you spend during the month gets accumulated and you end up paying very high interest for your purchases.
Hence, it is very important to pay the maximum amount possible, paying the full amount is even better before the interest carries over. In case it is not possible to pay your entire bill at one go, the better option is to convert them to EMIs so that your amount is divided on a monthly basis. The interest you will incur in EMIs will be less than the interest that will get accumulated.
Also, make sure to not miss or default on any payments since it leads to penalties which are also very high in the case of credit cards.
Withdrawing cash using ATMs
This is a big NO! A number of times unexpected expenses pop up during a festive season, be it someone's gift you forgot to buy or some sudden guests, etc. The cash limit on your credit card is bait. While it may help you solve your cash crunch problem momentarily but it can also lead to a debt trap.
This not only throws your budget out the window but can also be quite expensive for you. Withdrawing cash from credit cards has a higher interest rate attached to it than your card purchases. Interest on this amount starts from day one till it is repaid. Depending on your card, the charges on such a withdrawal can go as high as 49 percent.
So, unless you want to burn a hole in your pocket, it is not recommended to withdraw money using a credit card. Also, if you must withdraw, make sure you repay the money as soon as possible. It is not necessary to wait for the monthly bill also, as soon as you can arrange the money, you should make the payment.
Not using reward points
Reward points are one of the main advantages of having a credit card and should be used whenever possible. During the festive season, when you are already spending more than usual, reward points can help you save a bit. You should always be aware of how many reward points you have accumulated and how you can use them to your benefit before they expire.
Exceeding credit utilisation ratio
The credit utilisation ratio for a credit card is the percentage of the money you owe divided by your credit limit. When you exceed your credit utilisation level beyond 30 percent, it reduces your credit score.
So for example, you have a credit limit of ₹1,00,000. 30% of that will be 30,000. So make sure that the total amount you owe is less than 30 percent which is 30,000 in his case. If you have to spend more, it is important to try and pay back the extra amount as soon as possible so as to not adversely affect your credit score. If you frequently breach the 30 percent mark, you can either ask your bank to increase your credit limit or opt for an additional card so that your credit utilisation in both cards remains below 30 percent.
A credit card is a very beneficial option but it must be handled responsibly so that the user is not stuck in a debt trap. Now that you know how to cautiously use your card and the mistakes you must avoid, this festive season can be more cheery.