Credit card, if used wisely, can become a powerful tool for your financial management. But a little carelessness can trap you in huge debt. Here are some easy tips, with the help of which you can use credit card in a right way and avoid the debt trap.
It is important to understand credit card
Credit card is actually a tool, which allows you to borrow money up to a limited amount. It makes your purchase easy, improves credit score, and sometimes also gives rewards. But it is very important to understand its terms and conditions, such as interest rates, fees, and payment due date.
Understand your bill in detail
Your credit card bill usually consists of three things:
- Amount spent: The amount you have purchased.
- Interest: Interest charged on the outstanding amount.
- Fees: Annual fee, late payment fee etc.
If you do not make the payment on time, not only does your credit score deteriorate, but you also have to pay more interest.
Avoid debt in smart ways
- Choose the right card: Choose the card according to your needs and spending habits. Keep in mind the interest rate, annual fee and rewards.
- Make a budget: Make a budget to keep track of income and expenses. Allot a separate amount for credit card payment.
- Differentiate between needs and wants: Avoid unnecessary expenses and focus only on the essentials.
Create an emergency fund
Keep an emergency fund for sudden expenses. This will save you from using credit cards. Try to have at least 3-6 months of expenses in savings.
Make payments on time
Pay more than the minimum payment every month. This will reduce your interest and the debt will be over quickly. If you have debt on multiple cards, seek help of consolidation.
