How to manage credit cards efficiently
Posted by: Arti Bhargava on Mar 12, 2018, 06.30 AM IST
Nikita Singh is a 35-year old software consultant based in Mumbai. While she and her family are conscious about the need to spend within the limits of their income, they love to indulge in shopping sprees, movie outings, eating out and taking trips.
Nikita also travels a lot for work. Lately, she has been having trouble managing her credit cards. She has missed payments on some of her cards, which have gone into revolving credit. In some cases, she has not been using the cards at all and still ends up paying the annual fee. This is not only cumbersome, but is adversely affecting her credit score.
Nikita realises that she has to streamline her card usage and take stock of all the credit card services she has subscribed to. How should she go about doing this?
First, Nikita has to address the question of whether she needs multiple credit cards, and, if so, how many. Having more than one card is useful in an emergency, when a large payment has to be made or when a particular card cannot be used. Ideally, the cards should have different affiliations like Mastercard and visa cards.
It is also a good idea for Nikita to dedicate one card for official use so that there is no confusion on claiming reimbursement for payments made. Since her job involves a good deal of travel, using a card linked to an airline for official use will let her get better deals and earn points. Two cards, or three at most, for personal use and one for work-related expenses should suffice for her needs.
While streamlining the number of cards she has is important, Nikita should consider retaining older credit cards with good credit history since they would have a positive impact on her credit score. The factors she needs to take into account in this respect include the acceptance of the card, authorised limits, billing cycles and associated costs. Store- or product linked cards add very little value and may even encourage spending.
These should be the first to be closed. Nikita should set up an online payment process for her cards, so she is able to pay the bills from her bank account using the internet or mobile banking services. Having a place to keep credit card slips will make it easy to access them for checking against card statements. She should also sign up for online or mobile reminders of due dates, online statements and payment facility. These will allow her to continue enjoying credit facilities without being overwhelmed by cards.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
This article appeared in Economic Times dated Mar 12, 2018, 06.30 AM IST