How to Best Manage Credit Cards

A credit card is a useful tool, when managed judiciously but a lurking danger if you mismanage it.

One of the first things you need to keep in mind is to read the term and conditions, when you apply for a credit card. It could be a laborious process but something that has to be dealt with, to protect yourself from any rude surprises that might be in store for you in times like this.

One hears stories of money being taken from the savings account of a person who has a credit card with that particular bank! Well, banks are allowed to do so, when a default occurs, the clause is covered in the terms and conditions.

Banks also have an auto debit facility to claim a minimum payment on credit borrowed, if in case your account does not have enough funds, banks are allowed to levy a fine, which varies from bank to bank. So ensure you always have sufficient funds, when you opt for the auto debit facility to cover your minimum payment due. But there's more to credit cards.

Profit from your credit card: Credit cards can be useful when you make a profit out of it! Now, how is that possible? Well, it all depends on the kind of card you purchase.

It is best to opt for a lifetime free credit card that does not have an annual fee attached. Also get a card that matches your lifestyle. If you shop a lot, see that your card offers a lot of discounts and cash back rewards for all the shopping you do with your card. If your job allows you to make frequent trips, get a card that gives you several travel friendly schemes on eating out, hotel stays and airline ticket discounts.

High interest rates: Though the whole point of having a credit card is to provide you with cashless convenience, it makes money sense to decide, when, how and why you should use it.

Never get tangled in the web of debt, especially when it comes to credit cards. Although it is an ideal resource to tap into, when you need to ramp up funds quickly, the interest rates charged on a credit card are much higher than even those charged on personal loans.

Remember that cash withdrawals from an ATM with your credit card will be charged a processing fee of around 2 per cent and an even higher rate of interest than your regular purchases on the card.

Taking a loan on your credit card: Most credit cards do offer an EMI (equated monthly instalment) facility to pay any loan you take on your credit limit. It normally takes just one or two business days to obtain this loan and this can even be arranged over the phone with no documentation.

However, the difference lies in the high interest rate charged, which can be an annualized interest rate of around 30-42 per cent. The cards that offer a comparatively lower interest rate in the range of 22-26 per cent most often do not have an EMI facility for repayments.

Though a credit card seem like a good bet for short-term fund requirements refrain from using it unless you can make the credit card usage count for some kind of benefit.

Using your credit card purchases for an interest-free period is fine, but remember the bank can do away with interest-free periods anytime it chooses to and can also hike the interest rates, according to its free will. Hence, be wary of a credit card and use it sensibly. Another important aspect in managing your credit card is to keep a careful tab on your credit card statement that should reach you on a monthly basis.

Understanding your credit card statement: Scrutinize your credit card statement to understand your spending pattern. If a bill does not arrive on time for you to pay your dues, report this to the bank immediately. Also keep track of the credit card bill through your online banking account.

The first detail you need to clarify is your name, billing address, card number et al to make sure it’s correct. The second aspect is the total outstanding balance and current due date for payment. This column will also have the previous month's transaction using the card. Here is an example:

Previous balance	Current outstanding amount	Total amount outstanding	Minimum payment due	Payment due date
Rs 5,000	Rs 3,000	Rs 8,000	Rs 320	25-3-09

Minimum Payment Due: The date for the minimum payment due allows you to pay up a small amount upfront and this is usually in place to protect your credit score.

However, as a practice ensure that you pay the total amount due before the minimum payment due date to maintain an impeccable credit score else you will be levied interest on the balance amount pending if you continue to pay the actual amount due in full only after this due date. If you fail to pay even the minimum amount due you will incur a late payment fee as well.

Transaction Details: The second aspect to be scrutinized is the list of purchases or transactions done throughout that particular billing cycle. Go through each particular of this list to see if they match your expense records.

Usually your statement will have a reference number that can be quoted if you feel any charge specified needs to be clarified. Utilizing your reference number for billing errors and unauthorized charges

Always commit in writing within 60 days (this time period varies from bank to bank) of the receipt of your statement the complaint regarding the billing error or unauthorized charges. Include all the following particulars in your complaint:

· Your name, address, account number and reference number

· Error description

· The date and amount of the charge

· Reason cited for the dispute of charge

Check your credit card statement if there is a specific address to which the complaint has to be sent to. This might be at the end of the statement or as part of the fine print, behind the statement.

Your credit card statement also has the other particulars like:

• Credit Limit: This is the maximum limit up to which you can make purchases or withdraw cash on your card. This credit limit can be revised by your credit card company depending on your credit score and your repayment track record.
• Available credit limit: This will be the amount you can still avail after you have made a bunch of transactions using the card. For instance, if you have a credit limit of Rs. 1 L and you have made purchases worth Rs 25,000, then your current available credit limit would be the balance, Rs.75,000.
• Cash limit: This is the actual cash limit up to which you can withdraw on your card, which is included in your credit limit.
• Statement Date: The billing cycle ends on a particular date after which the statement is printed, the interest rates applicable for your card transactions are calculated using this statement date as the starting point.
• Total outstanding Amount Due: This includes past and present credit expenses and other charges levied to your account.
• Reward Points Summary: This provides you cash discounts and other benefits on purchases made when accumulated over a period of time. This column contains all the past points earned and utilized by you till that particular billing cycle.
• Grace Period: A grace period is the number of days you might get as relief before the high interest rates start kicking in for the remainder of the amount that is due. This can be anywhere between 20 and 25 days.