How to maximise benefits from plastic money

How to maximise benefits from plastic money

Credit cards should not be used as a borrowing option. If borrowed from credit card, the card user should repay the amount within the grace period.

Plastic money is the smartest way of prepaid credit. It offers the ease of easy shopping. But becomes the worst financial demon if used carelessly. The worst thing regarding the usage pattern of plastic money is using it as a borrowing tool.

The monthly credit statement of plastic money mentions the maximum cash limit. That is the extent to which the card user could withdraw cash. But the worrying part of the story is the interest rates. It’s actually a very expensive proposition to withdraw cash as the interest rates are calculated on monthly basis and is around 40% per annum.

Usually, the companies dealing with plastic money mention the interest rate as a percentage per month which typically varies between 2.7 and 2.85% . As the payable interest rate is compounded monthly, the effective annual rate of interest tends to be near about 38 to 40% per annum. These companies also charge the same interest rates for cash withdrawals made through the card and for rolling over balances. But if the card user pays the entire amount on due date, he gets around 30-45 days of interest free credit.

Cash withdrawals from credit card attracts an additional withdrawal fee. This extra charge falls in the range of 3-3.5% of the withdrawn cash and is added along with the interest rate to the bill. Therefore, unless the card user has emergency needs, it is not wise to withdraw cash . In such situation personal loan is a better option. The card user should look at this option as the last resort to meet the needs. If it’s a planned expenditure and he does not have sufficient liquidity then a personal loan should be taken as a viable alternative.

Every credit card statement has a separate billing date. For example, if the payment is due on March 15 then the bill is dated around February 27. So if the card user wants to purchase anything on February 28 or later, that payment would be due only on 15th April. In this case, the customer gets some extra time to cough up that money to pay off the dues. If the card user is unable to pay the outstanding amount with in this period, then the credit card company charges a month rate of 2.95% of the total amount.

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