Credit Cards are comes with a number of benefits, But you must be use your Credit card carefully, and never use in 5 situations.
not easy to ignore a advertisement in a newspapers about cash back offers, contains if you purchase it using a particular bank’s credit card. Increasing consumerism and the attract of things like free reward points drive people to use credit cards.
In some situations this could be damaging to your finances. Here are some situations where you should usage limitation and avoid using credit card.
Treating it as emergency fund:
Emergency fund is a separate balance of money which advisable investors keep aside to tackle sudden costs. It should amount to at least 3-6 months of one’s monthly obligations. It can be maintained in a fixed deposit or other equally liquid fund. If you depend on credit card for emergencies and are not able to gather sufficient funds to pay total amount due on the card on its due date, the interest will show in your statement can cause a huge burden.
Trading in stock market or gambling etc:
Tip: Never use your credit card for equity market purchase.
Using your credit card to withdraw cash & fund equity purchases is not good and it especially happens during bull-run phases in the market when greed takes over the better sense of investors. If the value of your investment decreases by your payment due date, you may have to sell off your holdings in an untimely fashion or borrow money from your friends and family to pay the credit card bill. However, keep in mind that rate of interest on cash advances can be extremely high. Also, one should never use credit cards for gambling and other speculative purposes.
Shopping without being mindful of the cash flow patterns:
Uncontrolled marketing can lead people to make impulse purchases without considering cash flow figure. As a result, though the retail therapy can seem soothing initially, you can be in for a shock when you receive statement. Thanks to the high rate of interest on credit card dues, non-payment or delay can quickly immerse you into a debt trap.
Related: how your credit score is calculated.
Using Credit card for withdraw cash from ATM:
Tip: Using your credit card to withdraw money at an ATM will cost you.
You can use a credit card to withdraw cash from an ATM, It works like a debit card. In such case, there is a flat transaction charge on the amount withdrawn which could range from 2.5 to 3.5% and this interest applies from the date of withdrawal till you repay the full outstanding, at a rate which goes as high as 40% per annum.
Using the card at places where security can be compromised:
2 Factor Authentication have made credit card usage secure and safer, not many people know that it applies only for transactions done within India. Hence, it may be possible that for transactions on international websites, what it takes is just the credit card number, expiry date and 3 digit CVV. Hence, you must exercise discretion in using your card at places which are not very credible, or where it is swiped in your absence, or where you are travelling overseas in countries known for credit card cloning & other malpractices.
By utilizing discretion in certain situations, you can gather maximum benefit from your credit card and at the same time, ensure your financial well-being.