First things first – Using your credit card till it reaches the credit limit is not a good practice and should be completely avoided. You should not use more than 40% of your credit limit in any given month. A maxed-out credit card is a dangerous proposition because of several reasons. Firstly, a credit card comes extremely handy during emergency situations like a sudden medical exigency of a family member or booking a flight at the last minute. Having a credit card that’s maxed out during this time will force you to look at other avenues in the time of need, and the purpose of having a credit card will be completely defeated. Also, a maxed-out credit card hurts your credit score and may impact your chances of getting a good deal on home loans or personal loans in the future.Here’s what you can do to ensure you use your credit card optimally and it’s never maxed out.
- Prioritise your credit card spending: Many use their credit cards for their daily expenses to earn maximum reward points. From groceries to utility bills – everything is purchased through a credit card. What this means is a bloated credit card bill at the end of the month, and a failure to pay the entire due amount, then leads to big interest rates and late payment charges.
What to do: Take a close look at your credit card bill, analyse where you are spending and what expenses can be curbed and what can be paid through other means. For eg – Try paying for household expenses through mobile wallets and debit cards. It will also help you track your expenses better. Use credit cards for big ticket purchases like consumer durable items like a TV, refrigerator, AC etc. to earn big reward points.
- Have a clear payment plan: The biggest mistake people make while using a credit card is paying only the minimum amount due against their credit card. Thumb rule for using a credit card is that before you swipe it, ensure you will be in a position to pay the entire amount due by the due date.
What to do: Try to build financial discipline – Buy things which you can afford and completely avoid impulse buying. In case you are running behind your credit card payment, stop using it completely till you clear your credit card debt.
- Have more than 1 credit card: If you have maintained a good credit score and possess multiple credit cards, then you can initiate a balance transfer from a higher interest credit card to a lower interest card. Moving your due balance to a low-interest credit card would help you in paying off your credit card bill without paying hefty interest on it. The intention should be to get the credit card debt off your shoulder as soon as you can.What to do: If you are a heavy user of your credit card, having at least one other credit card makes sense, especially when you are coming close to maxing out your credit limit regularly. Use both cards optimally and ensure you are aware of the terms & conditions against each card – interest rates, reward points etc. But avoid having more than 2 to 3 credit cards, it will only encourage you to spend more and it’ll also be difficult to track and manage.
The most important aspect of using a credit card is awareness. Be aware of your credit card spends, do not keep using it without knowing how much you have used it in a month – use debit card, mobile wallets, cash instead. Keep a limit to your credit card spends and don’t go beyond it.