FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Use your credit card judiciously!
Credit cards provide a great convenience to us when making our transactions. If used in a right way, it gives a maximum convenience and benefit. In contrast, if it is used in a wrong way, they become a financial mystery. The following are some of the smart ways of using a credit card.
Always try using the credit card as much as possible for even small and regular purchases. This helps you to keep a record of the expenses made during a given period and this helps in budgeting of your expense. Further, try using the credit card at every possible manner. For instance, use credit card to pay all your utility bills, ticket reservations, online purchases and insurance premiums. This way you can make use of the free credit period and earn free credit points to the maximum.
Be cautious of your spending
People tend to always over spend when they use credit card. The reason is that the pain of paying back the money is postponed to a future date. Therefore, always stay conscious while using credit cards.
Pay your credit card bill on time and in full every month
Always try paying the credit card bills well in advance. This minimizes the chances of default from your side and avoids late payment fee. In case of an emergency, try paying at least the minimum amount due.
Don’t use too many cards
Even if you do not use more than one card at a time, the risk exposure of loss or theft is high with credit cards. Therefore have one or to the maximum, two cards. Always remember credit card is a convenience for a single payment option.
Do not borrow on cards
Always remember that credit cards are not an additional source of money. They are only tools to make use of the current funds in an effective way. In case you are really short of money, go for personal loans rather than credit card withdrawals. The rate of interest on a personal loan is also much less than the normal revolving credit facility of the credit cards.
Monitor your credit limit
It is always better to have an optimum credit limit. This decreases the amount of risk exposure. It is better to stick to a self determined credit limit and reject credit limit increase proposals from your card issuer.
Terms and conditions
Always read the terms and conditions before using the credit card. There are always hidden terms and conditions to which customers ignore and end up having. The time you spend in reading the terms and conditions saves a lot of money.
If the amount you spend exceeds Rs.2 lakhs per year, you are required to mention the same in your tax return. Therefore, monitor the total usage of your card during each financial year.
Do not pay card surcharge
As a mandatory policy, the merchants are not authorized to demand surcharge on the customer purchases. Therefore, never pay a card surcharge.
Cash backs and reward points
Always make use of the cash back and reward points wherever possible. A word of caution – Ensure that you think of them as an additional bonus and do not get obsessed with them!