Credit cards are often called a ‘double-edged sword’ — and rightly so. They are powerful financial tools, but only when used with responsibility and discipline. As credit cards represent unsecured borrowing, not everyone manages them effectively. Developing sound card management habits is therefore crucial to maintaining financial stability.
Credit cards are attractive for their multiple benefits — interest-free periods, loyalty points, complimentary lounge access, free purchase insurance, term coverage, EMI options and discounts on online purchases or entertainment. However, it is essential to remember: credit cards do not offer free money. Wise usage and timely repayment are the cornerstones of responsible credit management.
Smart ways to manage your credit card:
1. Maximise the interest-free period
Most credit cards offer an interest-free period of 45–50 days. To get the maximum benefit, avoid making large purchases or payments just before your billing date. Consider holding two cards with different billing cycles to extend this facility strategically.
2. Pay on time — always
Credit cards carry heavy interest and penalty charges on overdue payments. Paying only the “minimum amount due” is a trap that leads to compounding debt. Always pay the full amount before or on the due date — set a reminder or auto-debit to ensure timely payment.
3. Control impulsive spending
Track your expenses carefully and avoid unnecessary swiping, especially for dining or shopping sprees. Using cash for discretionary purchases can help curb overspending and maintain control.
4. Keep your utilisation below 50 per cent
Your credit utilisation ratio impacts your credit score. Try not to exceed 50 per cent of your card limit. If your spending needs are higher, request a limit increase or use another card with a different billing cycle.
5. Avoid cash withdrawals
Withdrawing cash from ATMs using your credit card attracts high charges and immediate interest. Use this facility only in emergencies.
6. Restrict international usage
Foreign transactions may include conversion and service fees. Use credit cards abroad only when essential — prepaid travel cards or local currency are more economical and safer options.
7. Choose the right card
Select a card that matches your spending pattern and offers value-added benefits with low or no annual fees. Avoid cards that encourage unnecessary spending through flashy rewards.
8. Set transaction limits and stay alert
Define limits for cash withdrawals, contactless payments and online transactions. Report any suspicious or fraudulent activity immediately — remember, a stitch in time saves nine.
As emphasised at the start, credit cards can work for or against you. They provide convenience and rewards, but mismanagement can quickly lead to debt and financial stress. Following the 50/30/20 rule — spending 50 per cent on needs, 30 per cent on wants and saving 20 per cent — can help maintain balance.
Credit cards are not free products. Nevertheless, when used judiciously, they can indeed be a powerful ally in building financial credibility and control.
R Madhusoodanan
The writer is Executive Advisor to the Board, Global Money Exchange, Muscat
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