On an average, we carry a considerable credit card balance. With the pandemic and lockdown creating havoc on the economy, our credit card balances can be affected as well. The balance you have got on your credit card right now, may just be gone by the time the pandemic ends.
Perhaps right now you are relying on your credit card to get through a job loss, or have to buy things with it alone. However, the thing is that while a credit card is super useful, there are still a few guidelines to follow when using it. When you follow these guidelines, you ensure your financial wellness in such difficult times.
The rule of thumb is that you should never pay for anything with your credit card that you can’t repay in full before the due date. A credit card can be very useful. If you pay before the due date, or on it, you don’t need to pay interest. However, interest is heavy if you keep delaying payments and EMIs.
Mortgage or rent: You can of course choose to pay these by your credit card, but this is seriously not recommended. At the least, you need to keep a close attention while paying these. You may see that it is a fantastic way to get extra rewards when you pay these expenses by the credit card, but you should also remember that there is a 2% to 3% processing fee. This fee negates all other benefits. Before paying with your credit card, be sure to know the fees and additional cost. If you are a home-owner, it is a strict no-no for you. Paying mortgage by credit card tells that you do not earn enough or have enough income.
The only time you should use your credit card for charging mortgage or rent is when you want to meet the minimum amount to get a welcome bonus. This can be the case only if benefits are more than the processing fees, and that you have money to repay the loan before being charged interest.
Buying something big: When it comes to a credit card, we seem to think we have unlimited money. However, this is not your money. It belongs to the bank, and you need to repay it soon. So avoid buying big with it, and certainly not something you cannot repay before being charged interest. However, even that is not the only problem. Your credit limit will be affected too, and by extension, your credit score.
Taxes: Generally, you should not be doing this. Credit card payments, unlike bank account transfers, are not free. You’ll be charged a percentage of tax payment. While it depends on your tax processor, this charge can be between 1.87% and 3.93%.
Medical Bills: It may seem like a good idea to charge medical expenses on a credit card, but it may not be most of the time. It can cost you a lot if you are unable to repay fully before the interest is charged. And the interest in this case can be pretty high. If you are not able to repay a credit card loan with interest, there are always Zero balance transfers.
Sudden small splurges: Small purchases can affect you as well. Small purchases accumulate and are not easy to keep track of individually. In their case as well, you need to repay before getting charged interest. Too many of these purchases as you can get a pretty high interest rate.
The way to use your credit card frugally is by seeing it as real cash. Additionally, you need to monitor your spends as well, regularly.