1. Credit card harmful to the financial situation
Many people run away from credit cards because they are afraid of getting into a debt trap. They feel that by having a credit card, they will start spending more. But those people will be trapped in the debt trap, which does not have the financial discipline, that is, those who do not know how to rein in their expenses and spend their money very excitedly. For those who do not have such a habit, a credit card can be helpful for them.
2. There is no finance charge on minimum due amount.
Credit cardholders often think that paying the minimum due amount of their card bill will not impose a finance charge on them, but it is not so. Paying the minimum due amount only saves the late payment fee. There will be a finance charge on the remaining bill amount. Therefore, pay the entire outstanding balance till the deadline of the credit card bill payment.
3. Increasing the credit limit is not beneficial
Many credit card holders avoid increasing their credit limit, they feel that it will cost more. If you use your credit card carefully, then more credit limit can be helpful in helping you when you need it. It will be easy for you to handle expenses in the event of an emergency. Also, due to the high credit limit, your credit utilization ratio will decrease. This will further increase the credit score, which will increase your credit card and creditworthiness.
4. Credit score will be better by closing unused cards
Closing unused credit cards can reduce your credit score for a short time. However, by closing a card, the annual fees or renewal fees incurred on it can be saved. But this will reduce your credit limit. If you have many credit cards and want to close any of them, then try to close relatively new cards. But before that, try to increase the credit limit of the cards you want to keep.
5. Better cards with zero annual / renewal fees
Many people give a lot of preference to credit cards with zero fees. But credit card selection should be done according to your mode of spending. Most credit cards are offered with specifically targeted users in mind and provide special benefits or reward points according to the transactions of those users. For example, shopping cards offer higher benefits on grocery, lifestyle and other retail expenses, while fuel credit cards offer higher discounts and cashback on fuel transactions. Similarly, travel credit cards attract travellers by offering high reward points, cashback and discounts on travel, hotel stays and dining.
Therefore, before choosing a credit card, carefully analyze your spending patterns and transactions. If you are getting more benefits on the transactions you usually do on a credit card with an annual fee, then choose it.
(Author Sahil Arora is the director of paisabazaar.com.)