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Five tips for credit card beginners

It might be tempting to just flourish your card everywhere, but there are a few lessons you must adhere to if you don't want to end up in a debt trap.

, ET Bureau|
Updated: May 01, 2012, 08.34 PM IST
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Five tips for credit card beginners
It’s thrilling to get your first shiny plastic card and the sense of freedom that comes with it. But tagging along with these feelings is responsibility, something you need to learn before you begin swiping your card. It might be tempting to just flourish your card everywhere, but there are a few lessons you must adhere to if you don’t want to end up in a debt trap. Here are some points to keep in mind.

Stick to a budget:

When you carry only cash, you can’t spend more than what you have. Unfortunately, the convenience of a credit card could be your financial downfall as you may end up spending more than what you can afford. So, keep a monthly limit for your expenses and stick to it. Every time you swipe your card, you receive an alert on your mobile phone (this is why it’s a good idea to register your phone number with your credit card account), and this can help you keep a check on your card budget.

Always pay the full amount on time:

You will receive a monthly statement telling you how much you need to pay. Ensure that you pay the full amount on time or you will be charged a late fee. Don’t be tempted to pay only the minimum amount due and roll over the balance to the next month. You’ll be charged a high interest rate, usually 1.5-3.5% a month, on the amount that you rollover and this will inflate your bill for the next month, making it much harder to pay the bloated bill. Preferably, pay your bill through Net banking as you will be charged about Rs 100 if you pay through cash at the bank.

Don’t increase your credit limit:

When the bank offers you a card, it will set a credit limit based on your income. You may want to enhance this limit to fund more expensive purchases. But avoid doing so for a year, at least not till you’re more confident about how to use your card. Though the bank will be willing to raise the limit, you still have to pay from what you earn, don’t you? So, unless there’s a substantial increase in your salary, stick to a low credit limit.

Avoid cash advances:

Don’t use your credit card to take a cash advance from the bank or at an ATM. One, you will be charged a one-time transaction fee which could be as high as 3% of the advance. Secondly, you will have to pay a high interest rate on the money, and this interest will begin to accrue immediately. Only take this route in case of an emergency.

Secure your card:

Don’t provide your credit card information to anybody, especially the CVV number at the back of the card. Don’t let anybody else use the card as you are responsible for all the charges on the bill. When you give your card to be swiped, keep a check that the salesperson does so properly and that there is no chance of skimming, that is, your card information being stored somewhere else. When using it online, ensure that it is a secure and trusted website. Keep track of your usage and compare records when you receive your monthly statement.

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