My personal experiences with a credit card

This blog is not a general post on the pitfalls of using a credit card, but rather my personal experiences (highs and not-so-highs) with the credit card.

I got my first Standard Chartered credit card 19 years back, on my second job. Right, credit cards have been around for so long. 19 years of credit card experience!! That should make me a pro in handing out any advice regarding credit cards, right? So, here are some of my do’s and do not’s based on my personal experiences.

Let’s start with the do not’s. Do not:

• Get trapped in the minimum revolving balance cycle: You may have read this many times, but this is the basic golden rule of using a credit card. You completely lose the benefit of interest-free period (52 to 60 days depending on the card) if you have any outstanding (it could be 100/- for that matter). The way it squeezes you out is suppose you have an outstanding amount of 100/- from the previous cycle. In the current cycle, you decide to go on a shopping splurge and spend let’s say, 5000/-, which you plan to pay back when the bill comes, as you have got a raise and are expecting extra cash in your bank account. So you would be thinking of paying 5000/- + 100/- + the interest on the 100/-, right? Wrong, you will be paying 5000/- + 100/- + the interest on 5100/-. This is where the credit card company benefits and makes money from you. Now, imagine when that 100/- becomes 1000/-, and you find yourself in the debt trap. On my first card, I had run up debts to around 30,000/-, which was way above my monthly salary then.
• Use the credit card in an ATM: Do not use credit cards to withdraw cash from an ATM. In the case of cash withdrawals, there is no interest-free period, plus banks charge you a cash withdrawal charge and an interest, which makes cash withdrawal more expensive than a personal loan. There is an alternative, which I have opted for, in times when I have needed small amounts of cash. I would only suggest this if you need small advances of cash (25K to 50K), and you have a decent credit limit on your card. Credit card companies offer you cash-on-call, using which you can take a loan, with the loan amount deducted from your credit limit. You can paid back the loan on a monthly basis with your regular credit card payment. The advantage is the interest rate is around 1% per month (depending on the bank). So, for a loan of 50K and a tenure of 12 months, you will end up paying back 54K (including interest), which makes it cheaper than using credit cards in the ATM or taking a personal loan.
• Buy an army of credit cards: I am comfortable using 3 credit cards (1 master and 2 visa) cards. The number of credit cards you should have really depends on how frequently you use them. There is no point having multiple credit cards, if you use any of them occasionally. Many banks withdraw the issued credit card, when they find that you are hardly using them.
• Pay an annual fee: There is a common complaint among users, that companies are charging an annual fee or joining fee, even after committing otherwise. In instances when I have been charged any such fee, I simply call their 24-hour helpline and request them to withdraw the same. It has worked almost every time, as no company likes to lose a customer.
• Use a credit card when overseas: As a precaution, you should carry a credit card when travelling overseas, but use it only in an emergency. You will be reluctant to carrying a lot of foreign currency, so a better option is to use a forex card, which you can get from your savings bank, or any other bank. For international transactions, credit card companies charge their own conversion fees. Additionally, the chances of credit card fraud are higher when used overseas.

So, enough of the do-not’s with the credit card. Let’s now look at the dos with a credit card and how we can use it as an effective tool. Do:

•  Plan your monthly usage: To get the most benefit, I would say the best time to use the credit card is immediately after the card statement date. In my case, the statement date for each of my credit cards is 15^th of every month. So, all my purchases and usage would be from 15^th to 25^th (maximum) of every month. For the rest of the month, I religiously stick to using my debit card.
• Make your payments on time: As a rule, I have only opted for credit cards, which offers the most convenient mode of repayment. So, no repayments by cheque and drop-boxes for me. Most credit card companies enable you to make repayments through online net banking, or by linking payments only if you have a bank account with the same company. This is important, as credit card companies are known to charge you hefty penalties for late or missed payments.
• Pay your utility bills using credit cards: For the past few years, I have been using credit card to register and pay for my utilities including electricity, telephone, and gas bills. You can add up to 3 utilities with each credit card, which makes the required monthly payments automatically every month. The advantage is you do not need to remember to pay your bills on time every month; the card does it for you automatically and also on time.
• Use for Internet transactions: In this Internet age, you must be comfortable using your credit card online, despite the chances of fraud. I have used my credit card to book train and flight tickets, and also to pay insurance premiums. I guess it is a matter of trust that you develop with sites over years after making payments to them using your credit card.
• Utilize your reward points: As a rule, opt for a credit card that gives you more reward points for every transaction. Also, remember to redeem these reward points after you have accumulated a sizeable number. In several cases, I have opted to use my credit card instead of debit card for high value purchases, simply for the sake of getting reward points.

In today’s times, a credit card with a decent limit can help you in difficult economic times. You can treat it as a friend, only if you can take care of avoiding the pitfalls.