Most individuals employ credit cards as a routine method to manage daily expenses. To ensure judicious use of these cards, certain rules should be followed.
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Guideline 1- It is essential to pay off the entire outstanding balance each month.
This might seem a trivial issue, but surprisingly many individuals fail to do so and instead accrue exorbitant interest charges. One way to avoid this scenario is to arrange for automatic payments to be made from your regular bank account on the due date. This facility is not widely used, so you might need to request the form from your bank. Opting for automatic payments will also maximize the benefit of interest-free days (refer to Guideline 3).
In case you encounter difficulties paying off your credit card debts, creating a budget and monitoring your cash flow on a weekly basis is advisable.
Guideline 2- It is imperative to scrutinize your credit card statements.
For most people, credit card statements run into several pages, and it becomes arduous to remember each expense. Additionally, the merchant's name on the statement may not always align with the product bought, further complicating the matter. One way to tackle this issue is by reconciling each entry with your spouse or categorizing them into relevant groups every week. Utilizing a cashflow software that downloads all transactions dynamically is also helpful in achieving this objective.
Guideline 3- Optimizing interest-free days is essential.
Banks offer a maximum of 55 interest-free days on many credit cards. This feature is a significant benefit and should be factored in while selecting a credit card. However, interest-free days are only applicable to purchases made at the start of your credit card billing cycle. Hence, making large purchases early in your credit card cycle can be advantageous. This strategy works best when you also have a mortgage with an offset account since money in this account earns interest on your home loan. Late payments attract interest charges retrospectively for the entire duration, even if it's only a day's delay. Therefore, it's crucial to settle the balance in full by the due date.
Guideline 4- Rewards points can be lucrative.
The advantages and disadvantages of credit card reward programs are numerous, and each program has its unique features. Opting for a simple rewards program is the best strategy. For instance, redeeming rewards for vouchers at popular retail outlets, such as Myers or Apple, or Flight Center Dollars can be a smart move. The latter, in particular, can offset a substantial portion of your family vacation costs. Alternatively, you could choose to accrue frequent flyer miles, which can be an excellent value for money. However, adequate planning is crucial to ensure that frequent flyer seats are available when you intend to travel.