Every time you open the mailbox, there’s a shiny envelope with thousands of free miles, no interest, or bonus cashback just for signing up for a new credit card. But are any of those benefits truly worthwhile?
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Best way to use Credit card
Credit cards can be extremely useful tools. Credit cards, when used wisely, can be used to You can use credit cards if you use them wisely, but there is one major caveat. Every month, you must pay your entire balance. This is how you can avoid paying interest, which is what makes credit cards risky.
What is smart way to use credit card?
The average credit card interest rate in November 2019 was more than 41.88 percent, so debt can quickly accumulate when you carry a balance from month to month. The smart way to use credit cards is to reap the benefits while avoiding paying interest. But, with all of the available rewards, how do you choose between credit cards, and how many credit cards is too many?
It is beneficial to understand the various types of rewards cards available. Many credit cards provide sign-up bonuses. For example, a card may offer Rs. 2,999 in cashback if you spend Rs. 35,000 in the first three months. Typically, the sign-up bonus is where you can earn the most money. If that card offers 1.5 percent cashback on regular purchases, you’d have to spend Rs. 2,50,000 to get the same benefit.
How multiple credit card blows your Credit score?
It might be worthwhile to apply for a new credit card just for the sign-up bonus. However, be cautious if a sign-up bonus requires you to spend more than you normally would; it’s not worth blowing your budget when having multiple credit cards can help you build your credit history. Too many new lines of credit can actually lower your credit score, so don’t open cards at random, especially if you expect to need a loan within the next two years.
There is no ideal number of credit cards, but having a couple of cards from different networks can provide the most flexibility. Mini cards, in addition to sign-up bonuses, provide some kind of reward for ongoing spending. These rewards go by different names, such as cashback or miles points, but they all serve the same purpose: they incentivize you to use the card by offering a small reward for every dollar spent. Some people make the most of these benefits by using credit cards as their primary method of payment for all purchases.
However, this only makes sense if you pay off the balance in full each month. It may be beneficial to align your credit cards with your interests and spending habits. If you travel frequently, a credit card that offers flight credit, also known as Miles, may be ideal for you. If you’re trying to stick to a budget, a card that offers cashback on necessities, regardless of the type of reward, may be your best bet.
When comparing cards, choose the one with the highest reward rate. Calculate the reward value per point to accomplish this. For example, 10,000 bonus reward points on annual expenditures of Rs. 3 Lakh and 4 Lakh, and 2 Reward Points per Rs. 100 spent on all categories except fuel. While credit card rewards can be a convenient perk, there are a few things to keep in mind.
How much is the interest rate of Credit cards?
Some rewards cards have higher interest rates than a standard credit card. Even so, 38% of Indians who have Rewards cards have a balance. If you are one of them, you may be paying more in interest than you are earning in rewards. Also, don’t use your credit card to its limit. This could have a negative impact on your credit score. Attempt to keep your spending to less than 30% of your credit limit. That is, if your card’s limit is Rs. 75,000, don’t put more than Rs. 30,000 on it. Finally, many reward cards charge an annual fee, which can range from a few hundred rupees to several thousand rupees, to ensure that the benefits outweigh the cost.
How to utilize credit card properly?
Calculate how much you expect to spend on the card. Calculate your reward and make sure it exceeds the annual fee. In a nutshell, using credit cards wisely entails two things. Choosing credit cards with high rewards rates that correspond to your spending habits and paying off the balance in full each month. Following these credit card scanning ground rules allows you to benefit from purchases you already intend to make without incurring debt.