How to use credit cards for beginners

GR Thengdi guides us on how to use the credit cards carefully

Credit cards vs debit cards

Credit cards are very useful in managing our expense account. A credit card is different than debit card. In a debit card, expenses incurred are immediately debited to card member’s bank account. In a credit card, the card issuing company will set a credit limit, card member is allowed to spend within that limit, a monthly statement of expenses is sent to the card member and the member has to pay the dues before the payment due date. As soon as a transaction is made on the card, an SMS is sent by the card company to alert the card member that his card has been used. We should preserve the charge slips and invoices, compare them with the monthly statement and from the monthly statement, allocate the expenses to various account heads.

Choose a credit card company

Credit cards are issued by banks and usually, the bank with whom you have an account will offer you a card. There are big and smart card companies where you need not have a banking account. There is usually an annual card fee and card companies give reward points on value of usage of cards. These rewards points can be redeemed by articles offered by the card company.

Use card carefully

All this looks very simple but use of a card must be made very carefully else we may enter into a debt trap. Purchasing without shelling money from the wallet is very tempting and it is possible we may incur expenditure beyond our capacity. The card company will give you an option to pay only 5% of card dues and unpaid 95% will be carried forward to next payment cycle. The carried forward amount carries interest at 24% to 36% per annum and whatever new transactions are that are made are also charged interest. The burden of interest is very heavy and it would be difficult to come out of the trap.

Credit Card, therefore, may be considered as a facility where someone is paying for our regular expenses during a month, gives us details of what we have spent in a nicely drawn statement and asks us to pay the amount by due date. If we do not overspend, we can take full advantage of our credit card.

Read schedule of charges carefully

We should very carefully read the terms and conditions of the card membership, schedule of charges and facilities provided by card companies. Some card companies allow the card member to pay for certain expenses in instalment. Here the rate of interest is normal and a need arises, one can avail this facility. In addition to interest, a onetime transaction fee is also charged if we avail the instalment facility.

Use card for making payments on net

Credit card can be conveniently used for making payments of utility bills and online purchases of air and rail tickets, payment of telephone mobile bills and DTH cable TV recharge and purchase of other goodies. For using this facility, one has to get a separate password or IPIN from the card company. Let us see how this works.

Suppose we want to make payment of our electricity bill. We log on to the site of electricity company (Maharashtra State Electricity Distribution Co Ltd) and click on view and pay bills. The site will ask for consumer number and area code and when we enter these details, we get our current bill on the screen. We can take out a print of the bill and move ahead to pay. The site will ask for details of card number, card member’s name and date of validity of the card. Once these details are entered by us and verified by the card company, we will be directed to our card company who will ask us to enter the card number and IPIN and when these details are confirmed, transaction is complete and the electricity company will issue a receipt on screen. We can save and print this receipt for our record. The card company will send us an SMS that the payment has been made and it will also reflect in the statement of the next billing cycle.

Making online payment is very simple

Making online payments is simple and we just have to follow instructions on the screen. When we buy a rail or an air ticket, copy of the ticket will appear on the screen and we have to take a print out and use the same during travel. If your travel agent is booking a ticket for you, he need not hand you over a print out. He will simply mail the same to you. You will take a print out and use it for your journey. Online transactions are safe and details relating to our card are kept with utmost confidentiality. However, we should not do online shopping with a party whose credentials are not known to us. Some card companies send mails for each transaction. This also helps in managing finances.

The author has worked in the field of financial management over 50 years.

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