What are the basic things to know about credit cards?

• Where to use and where not to use?
• Where should you buy a credit card and where shouldn't you?

A card issued by a financial company that allows you to borrow money for your purchases and cash withdrawals. Every credit card has a billing cycle (billing date to billing date). On each invoice date, an invoice is generated consisting of a list of purchases. This bill has a certain due date by which the credit card holder must pay back to the bank - either the total outstanding or the minimum due.

Let's assume that your credit card bill date is the first of each month. Typically, the due date is 22 days after the billing date. Therefore, the refund due date is the twenty-third of the month.

Now, let's say a person with a credit card made a purchase the day before the billing day. This purchase becomes part of the invoice generated on the first day of the month and must be paid by the twenty-third day of the month.

This way, he or she has a maximum free credit period of 22 days. If the total outstanding balance is not repaid by the twenty-third month, interest will accrue at a rate of 2.95% per month on the outstanding amount.

Let's assume the month has 31 days, purchases made in the second month will be listed on the invoice generated on the first day of the next month.

This bill must be paid by the twenty-third of the next month. Therefore, he has 51 days of free credit (29 days until the invoice is generated + 22 days from that day to pay the invoice). Therefore, you can borrow money without having to pay any interest.

Therefore, it makes sense to use your credit card to its fullest immediately after the billing date, i.e. one day after the billing date, which in this case is the second of the month.

Cash withdrawal: But the above logic does not work if the individual withdraws money using a credit card. There is no free credit period. In the case of money, interest starts accruing from day one.

In addition a cash withdrawal fee is also charged. The cash withdrawal charge is typically around Rs 250 or 2.5% of the withdrawn amount, whichever is higher.

So, let's say an amount of Rs 50,000 is withdrawn using a credit card. Therefore 2.5% (approx.) of the amount is Rs. 1250 Now Rs. 1250 as we can see is greater than Rs. 250 and therefore Rs. 1250 is the amount that needs to be paid as a cash withdrawal fee.

Interest on cash withdrawals typically ranges from 3.0 to 3.5% per month. And since this interest is compounded monthly, the effective annual interest rate tends to be between 36 and 42% per year.

So if Rs 50,000 is withdrawn on the second day of the month using a credit card, interest will be charged till the time the bill is generated i.e. the first of the next month. Therefore, interest will be charged for a period of 29 days. At the rate of 42% per annum, the interest for this period on Rs 50,000 comes to Rs 1667. This interest is above Rs 1250 cash withdrawal fee. Therefore, a total of Rs 2917 has to be paid for withdrawal of Rs. 50,000 using your credit card.

Before you buy a credit card… Annual fees Nowadays, companies are offering credit cards at no cost for the first year and charging from the second year onwards. So, ask about their annual charges before purchasing a credit card. Some companies do not offer annual fee if you spend some limit (limit set by the company, 4-5 times your credit limit) Interest rate How much interest is charged, if you do not pay within the grace period. If it is more than 3-4% monthly interest, it is best to avoid it. Also, check the cash withdrawal fees at ATMs. Some credit cards allow you to pay through EMIs at that time. Check the interest rate on EMI.

Credit Limit Generally, companies will not disclose their credit limit before you purchase. They will check your CIBIL score etc. to decide your credit limit. If the credit limit is not sufficient, do not accept the card, return it and apply for it at another company Fees and penalties Other fines and fees such as card renewal charges, demand withdrawal charges, cash withdrawal charges, etc.

Incentives Many card issuers offer rewards and cashback to their customers to entice them to use the card. Companies like ICICI are offering credit cards just to improve your credit score.

TL; DR A credit card is like a double-edged sword, it is a very useful tool if you use it correctly, but it can also cause terrible damage if you use it inappropriately.

Get your card from any company that offers lower annual fees, lower interest rates, and more offers like reward points and cashback.

Use it wherever you want, except for ATM withdrawals and in places with surcharges.

I wish you all the best… Thank you…