Use Credit Cards The Right Way To Turn Them Into A Powerful Tool

The normal theme for individuals is to use their credit cards with caution to avoid falling into a debt trap, but at the same time, the card user can be smart too. The card-issuing bank would like to target you as a customer by making you take up several services that are profitable for them, but it is the cardholder's role to avoid falling into the trap. They can turn the tables and convert their spending into benefits that are actually useful to them. This requires a proper evaluation of the benefits and their usage behaviour. Here is a look at how the individual can ensure this kind of situation.

An individual using a credit card has to spend smartly and not just spend for the sake of it. This means ensuring that the expense is made in such a way that the amount can be paid back in time without having to fall into the interest rate trap. This is crucial because higher amount of expense might seem to be a good way to enjoy life immediately but there will be payback time somewhere down the line. This can be a problem if there is no planning involved in the spending and the final amount is not paid back by the due date. The interest rate cycle then starts, and the expense can go as high as 48 to 52% per annum, so this has to be avoided.

If an individual ensures that they are spending properly and using the credit card in an effective manner, then the card-issuing bank could even offer a higher credit limit based on their past experience with the customer and their track record. This is actually seen by many customers, as those who spend properly qualify for an upgrade after an initial time period is over. This can turn out to be beneficial for the individual because they have a higher limit that they can use when it is necessary for foreign spending or bigger expenses. At the same time, usually, these kinds of upgrades are done with ease and without having to submit additional documentation. This can also save a lot of effort in the process, so it is something that can be used effectively.

Many card-issuing banks also award a higher number of points for larger purchases and when they are made on specific occasions. This is a good benefit because the points can be used in multiple ways. One of them would be to just use them as cashback, which will reduce the bill amount as they are converted into cash. At the same time, there can be several gifts that can be bought using the points. Banks have an elaborate range of offerings for the points, including air tickets, and these can be used as per the needs of the cardholder, thus saving them some expenses.

Some of the banks have offers where once a basic limit of spending on a card is crossed, the annual fee is waived. This is a good benefit because it saves the customer the money that they would have paid on the fees for the card every year. These offers are on slightly premium cards where there is an annual fee and not on the lifetime free cards, which are more basic in nature. This in effect makes the card's cost zero, and it can be an incentive to drive spending toward a particular credit card. It has to be checked whether your bank offers this facility, and if yes, then it can be used too.

There are different levels of cards that are offered by banks. Proper management and spending on a credit card can lead to a situation where the bank offers the customer an upgrade to a higher level on their card platform. This can come with better features and benefits, and thereby, this is something that has to be considered after comparing the cost that the upgrade can bring. It should not be that the upgrade leads to higher costs for the customer, but if this is beneficial, then the additional features could also be used for a better lifestyle.

Arnav Pandya is the founder of Moneyeduschool.

The views expressed here are those of the author and do not necessarily represent those of BQ Prime or its editorial team.