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Today is the age of plastic. Even college graduates have credit cards. The easy access to funds is spuring consumption and excessive expenditure. To have a card definitely has its pluses in terms of the ease and safety of carrying and spending money. However as is with every benefit there comes a responsibility attached. So likewise, even with a credit card one must learn to use it wisely and to the best use.

In a credit card there are mainly three features-the eligibility limit, the interest rate charged and the credit period. Of these the first two cannot be manipulated by the customer. However the third if used sensibly can reduce the interest outgo on the card.

The grace period of a card is the interest free period on the card. It is the period between the credit card bill being generated and the day your payment is due. For example, suppose your card statement is generated on the 6th of every month and you are to pay the amount by the 26th of every month, then if you time your purchase cleverly then you will be able to avail of the full 50-51 day credit period promised by the card companies.

Taking the above case-suppose you buy a high ticket item before the 5th of the month, then it will get reflected in the card statement of that month itself, thereby reducing your interest free period. However if you buy after the 5th of the month, then the purchase will be reflected in the statement of the following month.

Assuming your music system costs Rs 25000, then you have already saved RS 548 in interest costs. That is when compared to a consumer durable loan at 16% which you may have had to take. Also of course it makes sense to buy the high ticket items close after the date on which the statement is generated as the interest saved is substantial. In case of small ticket items however the purchases can be spread through the month.

Another clever thing to do is to pay for monthly utilities and dailies, like groceries, petrol etc. so that the same amount of money can earn interest for you in your savings account. This is provided of course you will make a full and final settlement of these accounts when the statement arrives.

As mentioned above, discipline is a key factor behind the credit usage. At an interest rate of 2.95% per month, the actual costs work out to a whopping 35.4%. This is very high when compared to a personal finance loan which one can get at 17-20% p.a. So if you are going to make a big purchase and pay it back over a period of 5-6 months then perhaps it would be better to calculate the interest costs in the case of the card and a personal finance loan.

So the secret of using your card to its best and getting the most out of it depends not only on what you buy, when you settle, but even when you buy!

Aru Srivastava

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