Five credit card mistakes to avoid this festive season

Whenever you withdraw cash through your credit card, a cash advance fee of up to 2.5 percent-3.5 percent of the withdrawn amount is charged. Unlike other transactions initiated through your credit card, cash withdrawals also attract finance charges right from the day of such withdrawal till the date of repayment. Hence, cash advance fee, coupled with the high finance charges of up to 47-48 percent p.a. are capable of burning a hole in your pocket, especially when cash withdrawals from credit card are done on a frequent basis.

Instead of cash withdrawal via credit card, consider fulfilling your fund requirement by opting for loans which involve quick disbursals, such as loan against a credit card, gold loan, loan against securities or personal loan. These involve lower interest cost compared to the hefty finance charges and cash advance fee levied on credit card’s cash withdrawals. In case doing cash withdrawal via credit card becomes totally unavoidable, make sure you repay the entire amount as soon as you can. 

EMI on credit cards is usually offered for tenures ranging anywhere between 3 months to 36 months. While selecting EMI tenure, it's important to factor in your repayment capacity in order to reduce the chances of defaulting on repayment of your outstanding dues in future. Those who have a higher repayment capacity can opt for shorter tenures to save on overall interest cost, but remember that as shorter tenure implies higher EMI amount, chances of making any form of delay or default in paying such EMI would be higher, especially in case any unplanned expense or financial exigency arises. Whereas those with a lower repayment capacity can opt for a longer tenure, as it implies lower EMIs, the overall interest cost is higher in case of longer tenure. Remember that any delay or default in repayment of your credit card dues can adversely impact your credit score as well, which would reduce your eligibility and credit approval chances in future. 

With the motive to increase consumer spending on credit cards, some credit card issuers try to incentivise consumers by lining up numerous rewards on festive season spends. By tying up with merchants or manufacturers, they provide a wide range of special rewards during the festive season. These rewards may include deep discounts in the form of cashback and instant discounts, extra reward points on making festive spends, availability of more products on EMIs etc.. Therefore, before making your festive season spends, make sure you are aware the additional rewards being offered by your credit card issuer. In case you own multiple credit cards, compare the offers and rewards being offered by card issuers, and use the one that provides rewards and offers on the kind of purchase you intend to make.

Big ticket purchases during the festive season is a common practice, and credit card holders often opt to make such purchases in the form of credit card EMIs. Barring the no-cost EMI facility offered by some credit card issuers, credit card EMIs usually involve interest cost of 12-15 percent p.a. and tenure of 3-36 months. Before making big-ticket purchases through credit card EMIs, consider comparing other credit options such as loan against credit card , personal loan or gold loan. As lenders usually offer lower interest rates and/or processing fee concession/waiver during festive season, it would be prudent to compare the available credit options before going ahead with making your festive season purchases through credit card EMIs.