Credit Card Know-How: 4 must-follow rules to avoid debt traps | Mint

Credit cards can be a powerful tool for managing expenses effectively. They offer convenience by allowing you to make purchases without immediate cash outflow, deferring payments until the next billing cycle. Many banks offer credit cards with attractive rewards, cashbacks, and discounts tailored to suit various needs.

However, if not managed wisely, credit cards can lead to financial difficulties. Here’s a closer look at some essential etiquette rules for using credit cards responsibly.

1. Understand the minimum payment rule

Most credit cards come with a minimum payment requirement each billing cycle. While it may seem convenient to make only the minimum payment, relying on this option can be detrimental in the long run. This habit can accumulate debt due to high-interest rates on the remaining balance.

To avoid falling into a debt trap and incurring late fees, aim to pay off your entire credit card balance each month. This not only helps maintain a healthy credit score but also ensures you are not burdened by unnecessary interest charges.

2. Be cautious with cash withdrawals

Credit cards offer the option to withdraw cash, but it’s important to remember that this service often comes with hefty fees and higher interest rates compared to regular purchases.

Cash withdrawals from credit cards can lead to a rapid accumulation of debt, particularly if used frequently. While it’s acceptable to use this feature in emergencies, always be mindful of the associated costs and only withdraw cash when absolutely necessary.

3. Familiarise yourself with credit card rules and fees

Before applying for a credit card, take the time to understand the general guidelines established by the Reserve Bank of India (RBI). These rules cover various aspects, including interest rates, repayment cycles, and fees for late payments or exceeding your credit limit.

Being aware of these regulations helps you make informed decisions and manage your credit card effectively. Always read the terms and conditions thoroughly to avoid any unpleasant surprises later.

4. Respect your credit card limit

Your credit card limit is determined by factors such as your credit profile and score. While many issuers may periodically increase this limit based on your usage and payment history, it’s crucial to spend within your means.

Avoid the temptation to utilise your entire credit limit, as this can lead to overspending and potential default on payments. Keeping your expenses well within your limit not only ensures financial stability but also helps maintain a good credit score.

Conclusion

When used wisely, credit cards can significantly enhance your financial flexibility and offer various benefits. However, they can also lead to heavy interest charges and debt if not managed properly. Always remember that responsible credit card usage is key to maintaining a healthy financial life.