Ever after almost two years, the novel coronavirus have a serious impact on the world’s economy. People all across the world are struggling with job layoffs, pay cuts, etc. During this time, managing personal finances has become much more difficult. Many people have resorted to credit cards to meet this gap between their income and expenses. But is it a good idea?
Let us talk about sensible credit card usage during these trying times and some possible pitfalls.
How do Credit Cards Help your Finances in COVID Crisis?
Credit card usage comes with several benefits that further encourage users to put more expenses on credit cards. These benefits include:
EMI Conversion Facility- Since a number of people are facing cash flow issues, making purchases on EMIs could be a wise option as compared to paying in full and then making a partial payment. If you are unable to pay off your balances in full, you can get the same converted into EMIs too.
No-cost EMIs on select items- Despite the lockdown, online shopping websites are still offering no-cost EMI options on select items when you purchase using your credit card. This is also a good way to defer the payments on such big-ticket purchases without having to pay interest on EMI.
Reward Points and Cashback- On every purchase, most of the credit cards give you back in the form of rewards or cashback. If your card offers significant savings through cashback or rewards, it may be a good choice over cash payment.
Credit Score- Most important of all, smart usage of credit cards and timely payments let you build and maintain a good credit score. In such times, it is advised to maintain a good score as it will be helpful in securing a loan in the future if needed.
Suggested Read: How Credit Cards Affect Your Credit Score
Pitfall: The Risk of Debt Spiral
The problem with credit card usage arises when people start thinking that they can pay for the purchases later on. The extra disposable cash leads to a false sense of financial security especially in these times of disrupted cash flow and income losses.
Eventually, if you are unable to pay the bills in full and roll the outstanding amount into the next cycle, credit card interest rate will be applicable and it can go as high as 42% per annum. If you continue to revolve your balances by paying just the minimum amount due, a debt spiral will soon start.
How to Use your Credit Cards Judiciously?
It is very important to use your card wisely during this time. Below we have mentioned a few tips to make sure that you do not end up paying for things that you do not require.
Manage your Memberships and Subscriptions
Cardholders usually tend to forget about their subscriptions. Sometimes they subscribe for a free trial and then forget to cancel it. Other times, they continue to pay for a subscription but never really use it. Such subscriptions can add up to form a hefty amount. So, we suggest that you check all your auto-debits and subscriptions and cancel those that are not being used.
Use the Right Credit Card
If you have a card that offers cashback or discount on certain purchases, you should make the most of its benefits. For example, Amazon Pay ICICI Credit Card offers 5% cashback on all your Amazon purchases if you are an Amazon Prime member and 3% cashback for non-prime members. You should use this card to order groceries and other items.
Avoid Unnecessary Purchases
Stocking up on essential goods to last a few weeks is a great idea. However, you should not get carried away and purchase a year’s worth of sanitizer, groceries, toilet paper, etc. The government has lifted many restrictions and it will get easier to get access to these things. Moreover, this will add big amounts to your credit card balances. Hence, it is only wise to make as many purchases as you can afford to pay back.
Pay off your bills on time
We cannot emphasize more on how important it is to pay back your credit cards bills in full and on time. Credit cards, being one of the most expensive forms of debt, can easily turn your finances upside down, if not used wisely.
Must Read: Why You Must Always Pay Your Credit Card Balance in Full
What to Watch Out For?
There are certain things you must look out to save yourself from frauds in these times:
Travel Bookings
The lockdown restrictions have been eased for now and domestic flights have started. In time, even international travel will resume. However, you should not be too sure about the upcoming normalcy and be cautious with your finances. If you make travel bookings and cancel them later, the full amount may not be refunded. So, we suggest you hold on to such discretionary expenses and if necessary, make the bookings through the right channel- one that ensures full/partial refund.
Malicious sites email
You might get an email from fraudulent addresses talking about your credit card. While it may tempt you to open such links, you should never do so without confirming its source. Never provide your card details over emails or even on untrusted websites.
Callers asking for Credit Card Details
You might get calls asking for card details. Do not share the details with such callers. Banks and credit card providers don’t ask for such details. Report such callers to the bank. Nowadays, banks are also warning users about fraudulent calls regarding moratorium. In no case, you should provide card details over phone, email, SMS or WhatsApp.
Bottom Line
The world was not ready for a pandemic of this scale. It has led to major disturbances around the world, the economic consequences being the most impactful. Credit cards may seem like a boon during these times but only if you use them cautiously and keep making regular payments.
Coming back to normalcy may still take some time. Meanwhile, we should be cautious with our finances and try not to deplete all our savings.
