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  • Vinayak Parab

Understanding Credit Card and benefitting from using them

Not everyone can today can maintain a positive and fruitful relationship with their credit cards. One must learn the basics before you applying for a credit card. Understanding the fundamentals — from knowing which types of credit cards exist to the legalities of usage — will help you charge wisely from the moment you receive that powerful piece of plastic. Let us see some of the pointer you must remember while choosing or using a credit card

Free cards versus Paid membership cards

It is true that the paid credit cards offer a much higher value. Sure, you don’t pay anything for a free card — but then you don’t get back much as well.

There are many paid cards which may cost you a few extra thousands to get but they give much better points conversion than the free card they offer. In addition, you get stuff like airport lounge access, plus one movie ticket for free every month, special discounts in selected restaurants, etc.

So, overall, it is highly recommend getting a paid card if you can afford it as the payback is significantly higher if you move all your purchases to the credit card.

How many cards should I own?

Ideally, you should have 2 credit cards to be really safe. Try to get cards from different providers. For example, you should try and get an American Express and either a Mastercard or Visa. Not all stores accept American Express even though it has great benefits – hence you need a supplementary Visa or a Mastercard.

Get supplementary cards for your spouse / family

It makes sense to get supplementary cards for your spouse rather than getting them a separate card as the points add up on the same account for all supplementary cards. You may have lower limit overall (because the limit is shared between the cards) – so it makes sense to get 2 different cards with 2 supplementary ones for the both of you.

Understanding Minimum amount due mystery

Most credit cards will want you not to pay the entire amount by the due date. The balance amount left is shown as a personal loan and the interest rates can be brutal – 2.5 – 4% a month (i.e upto 48% a year) on the remaining amount. The only way you can use a credit card to your advantage is to always pay the entire amount by the due date. Never get into credit card debt. Not only will they take you to town with their interest rates, your credit rating will also be hit.

If you can’t afford to pay for something a 100%, you should probably not be buying it.

Never withdraw money from the ATM

Most credit cards will allow you to with draw some small amounts of cash from any ATM – around 10 – 20K depending on your limits. The credit card company will show this as a personal loan and charge between 3 – 4% interest per month on the amount. So unless you are in a bad situation, always avoid doing this even if convenient.

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