New norm in the money market is cards. Credit cards are gaining a momentum over cash as with the ease of one swipe you have what you want. But they can be like a sharp knife. If used wisely, they can really help you, but if you go rough with it, it can really damage you.
Just like marriage, having a card is a commitment in itself and comes with its own sets of pros and cons, so you need to know your card well before you go for it.
These little but important things could be your guide;
Annual Fee: Except for a basic entry level card with very less to no additional benefits, every card has an annual fee which you need to pay to own it. The higher the perks and rewards on the card, higher the fees it attracts. When getting a new card, know your fees or else you will be in for a surprise the next year when you get charged for annual fee and disputing would not be of any help as you will have to pay for it.
Charges and interest rate: Every card has late fee and interest rate on balance that you hold and this charges can wary and can also be as high as 18 to 40% annualy, so you need to know them well in advance to avoid a situation.
Perks and Rewards: Cards offer many benefits and perks to their users like cashback, loyalty points or discount and vouchers from some brands to shop from. You can also get partner cards where you can earn air miles, petrol station points and benefits or even supermarket deals. These can be of good use to you if you choose your card wisely and spend carefully on it.
Add on Card: All banks now offer add on cards which are nothing but an extension of your own card to your dependent or other members. You can get this for your spouse or other family member, but you will be liable to pay for it along with the primary card.
Comparing Cards: There are hordes of options for credit cards available in the market and with the competition, various banks offer competitive rates and perks to attract applicants. You can evaluate what you need, and which bank is providing you the best deal. Like if you are a frequent flyer, choose a card which offers you air mile point and also has low foreign transaction rate. Or if you go out frequently for dinners, go for a card which has partnered with various dinners to give your deals and discount.
Credit Limit: Credit limit is the maximum amount one can spend on the card in a given month. The thumb rule says that you should not exceed 30-40% of your credit limit. New cards could have a lower credit limit but as time goes by and if your card history is good, the limit could go up.
Credit Score: When ever you get a credit card, the card issuers share your details with the rating agencies who maintain your credit rating, like CIBIL in India. With every card, loan or any other debt, these agencies maintain your score based on your timeliness of payment, late fee or defaulting which could impact your credit score. If your score is not good, it could affect your future borrowing needs.
You should go for a credit card based on your lifestyle and financial goals. The amount you spend through your card should be budgeted in your expenses as not this month, but next month when the bill comes, you have to pay for it. A card when used wisely can allow you to leverage your cash flow but if you are simply going after rewards and perks, you could attract an overwhelming amount of debt if you fail to pay for it on time.
In my coming blogs, I will be entering a new segment where I will talk about home loans and mortgages and the topic for my next blog is “Are you ready for a house?”
Till Next Time
This blog is a part of Blogchatter’s #blogchatterA2Z challenge.