Seven ways to avoid credit card crises

Credit cards are double-edged swords. They have both intrinsic advantages and disadvantages like other financial instruments. Credit cards if used judiciously and wisely can ensure that one can actually save money on spending and purchases. If used recklessly and impulsively, they can dent financial savings and push the card holder into a severe debt trap.Let us take a look at seven fundamental things which each credit card holder must do to make sure he or she can save money on spending rather than end up paying more for each credit card purchase.

Keep fewer credit cards
One of the best ways to save on credit card spending is to use fewer credit cards. A number of people acquire too many cards either for credit or social status. If you have more than two credit cards, you can easily lose focus on the card spending and can end up spending more than the desired level. The higher the number of credit cards held by each individual, the higher are the chances of falling into a debt trap. Owning one or two cards also helps in earning maximum points, which you can claim as rewards.

Never use one credit card to repay another one
Using one credit card to repay the outstanding on another card is one of the biggest financial blunders one can commit. Credit cards can be a wonderful tool to increase savings on purchase but repaying one card’s outstanding using another one will lead you into a debt cycle. Such a cycle once in place can lead to grave financial consequences with a large outstanding denting into the possible financial savings of a few years.

Pay more than the minimum due amount
Paying more than the minimum amount due for each credit card billing cycle is a small but an effective move to maximise savings on credit card purchase. By paying more than the minimum due for the month, the card holder not only lowers the outstanding amount, but also lowers the effective tax on the due amount substantially. For credit card holders, paying only the due amount each month, even a discounted purchase effectively turns out to be expensive owing to the high interest rates of repayment.

shift from a high interest card to a lower one
For people having multiple credit cards, it is important to understand the personal needs and opt for a card that suits their needs. For example, if you use credit cards mainly to book travel tickets, it is a good idea to replace your normal credit card with a travel-oriented card. This allows you to maximise savings on travel and also get better deals related to your purchase.
With increasing competition in the credit card industry, there are cards available with same features albeit with a lower interest rate. It is a good idea to close your older card and opt for a new one which offers discounted interest rates on all purchases.

Swap your credit card at petrol pumps wisely
According to a recent study conducted by various financial companies, almost 6.5 per cent of all credit card spending is done at petrol pumps. So it is imperative to swap credit card at petrol pumps wisely. Many people use credit cards for their fuel purchase but are unaware of the fuel surcharge charges. A lot of credit card companies offer a complete waiver of such charges and reward customers for their fuel purchase with specific fuel companies. If you are using your credit card for fuel purchase, you need to make sure that you know which oil company has collaborated with your credit card to maximise your fuel purchase rewards.

you need to Opt for a secured credit card
Opting for a secured credit cards is a good idea to save on all credit card- related purchases and interest rate offered by such cards are substantially lower than normal credit cards.
Since secured credit cards are given over a financial security kept with the bank like a fixed deposit, the credit limit is always allowed keeping in mind the security furnished with the bank. Such cards can be extremely beneficial for those shoppers who have been guilty of swapping their cards during impulsive shopping pangs.

(The writer is the CEO of bankbazaar.com)