4 habits that you should inculcate while using credit cards

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4 habits that you should inculcate while using credit cardsNowadays, almost every salaried individual owns a credit card, but just as much as it is a blessing, it can turn out to be a noose around your neck, if you do not use it responsibly.

Credit is a word that has become synonymous with our lives today. It’s a great feeling to be able to swipe a small plastic card and access swanky new things in a jiffy! But the problem with credit cards is that people fall into a debt trap because they are unable to keep a check on their spending habits. Soon, they find themselves reeling under pressure of surmounting outstanding payments that they are either unable to pay or manage only to pay off the minimum amount due.

If you are new to credit cards, here are some compelling reasons to pay your credit card bills before their due date.

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Do not pay extra charges on interest
A credit card is the most expensive form of credit. When you are carrying an outstanding balance on your credit card, you are accumulating interest rate charges on a daily basis. If you pay your outstanding amount within the billing date, you end up lowering your average daily balance. This, in turn, can reduce your interest charges significantly. Over a prolonged period, you end up using credit responsibly and saving money that can be directed towards other financial products, which help you meet your long term financial goals.
Never build up an unmanageable debt pile
If you are fully aware of your billing cycle, due date and make sure that you make all payments on time, it means you have full control over your expenses. This also leads to some extra savings that can either be used for discretionary expenditures or can be directed towards a corpus you are building for later use. This way, there will be less chances of building up a debt pile.
Freeing up credit line for emergency use
If you build up a healthy habit of repaying your credit card bill on time, instead of building up revolving balance, you are freeing up your line of credit for emergency use. Many a times, in life, you are not prepared with enough cash for an unforeseen expense . In such cases, a credit card with a high credit limit may bail you out immediately. You can make full use of your billing cycle of 30 days and the grace period of 20 odd days to arrange for the funds to repay the outstanding amount on your card that has been used to fend for a large expense.
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Maintain a high Cibil score
Your credit card has the largest bearing on your Cibil score as it is not only the most expensive form of debt but also the factor that can bring down your Cibil score drastically. You are definitely in a debt trap if you are paying only the minimum amount due on your credit card. Your Cibil score comes down drastically on account of revolving balance and a high utilisation ratio, if you are continuing to use your card without making repayments. Before you know it, your Cibil score may dip to unsatisfactory levels. As a result, you may not have access to credit when you are in dire need of it.
Credit cards are great tools to fund your expenses only if you use them responsibly. Proper usage of credit cards may not only keep your spending under check and help you maintain your peace of mind, but it will also add up to a good Cibil score. A good Cibil score, as you probably know by now, is your ticket to easy access to credit.

( Rajiv Raj is the Director and Co-Founder of www.creditvidya.com)
(Image: Thinkstock)
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