How to derive maximum benefits from credit cards

Published: December 24, 2020 at 10:11 am

In this article, we discuss how to derive maximum benefits from credit cards. A credit card is a double-edged sword. If used wisely, it can be beneficial, particularly when faced with a sudden emergency: for example, unplanned hospitalisations. If used without appreciating how interest is charged, it can make our lives miserable.

There are two aspects to credit cards, basic usage and exploiting them to get reward point benefits. There are also at least two types of users: some prefer to keep the credit limit close to full all the time with limited usage and paying immediately upon use.

Some set up automated payments before the due date and use the card as much as possible. Others combine the two methods: one card rarely used for emergencies and one card heavily used for reward points. Also, see HDFC Infinia Credit Card Review and How to select a credit card.

It might surprise regular readers and expert credit card users, but even today many people proudly declare, “I regularly pay the minimum amount due each month”. Ramprasad, a mechanical engineer pursuing an MBA in finance, explains how to maximise reward points benefits from cards after an overview of the basics.

The moment you say credit card, some of us imagine a nightmare that it’s going to take all our salary away in repayment. I remember my dad raising concern whenever I tell him I purchased something on credit. There is nothing evil about credit cards. It just boils down to how we use it.


Do not spend more than what you could afford.

This is the most crucial point you should have in mind before starting to use a credit card. Although the credit card limit can be three to five times more than your salary, it doesn’t mean you should utilise them all. My personal experience is, spend what you can repay from your next month salary. If you think the nice cell phone you want to buy cannot be paid for from next month’s salary, then that expense cannot go under your credit card. Why? Read the next section.

Pay in full

Always, always pay your monthly bills in full. The balance you carry over every month accrues interest of about 2-3.5% every month. The annual rate may be as high as 24-42%. When you lend money to the bank in the form of a fixed deposit, they don’t give you that much interest, do they? So, why you want to pay the bank so much for the money, they lent you? So, think before you roll over your debt. 

Think before taking EMI and loan

Yes, you cannot blindly go for an EMI or loan for an expensive gadget or appliance or jewellery purchased on your credit card just because the monthly instalment is something you can afford. Think about the interest you pay on those loans. They can be anywhere from 12-25%. Yeah, huge! Companies offer no-cost EMI, but in reality, you have to pay interest on the credit card, which is given as a discount to you by the merchant. Remember, you have to pay 18% GST for the interest portion of the EMI amount added to your monthly statement. Processing fees, late payment fees, over-limit fees, and other fees… yeah, the list goes on. So, think of all the numbers before you go for an EMI or loan. EMIs would also lower your credit limit proportional to the loan outstanding.

Time your purchase

If you have cash in hand to be spent on a, say an expensive phone or tablet, then wait; there can be a better way to spend this money. Put this purchase on your credit card at a ‘right time’. When I say the right time, it means waiting for your current bill cycle to close and then order your thing the next day. This way, credit cards can give you up to 36-45 days’ (depending on the bank’s due date) time to repay the amount. During this time, you can put your money elsewhere to make it work for you and later withdraw that money to repay credit card spend. You get to keep the rest for something else.

Although the returns for such short terms may not be as high, especially if your planned spend is not significant, who knows, you might spend a lakh or more on a nice smartphone and tablet during a sale such as the Diwali sale that just closed. But what if you do not have this cash in hand? Timing the purchase will still get you more room to arrange for this money in the next 36-45 days, as opposed to say, next one week (if purchased closer to the current cycle close date); maybe you expect a big bonus next month! Timing your credit card purchase, in a way, teaches you the benefits of delayed gratification. 

Reward points are only complementary

Almost all credit cards come with some rewards program. Welcome rewards/sign up rewards, rewards on purchases such as petrol, grocery, travel, hotel stay, etc., the list is endless. Many a time you get additional discounts on purchases using a specific bank’s credit card. Ensure the reward programs, rupee to reward points equivalence and the redeem process and limits. While you do all these, remember one thing, get these reward points a perk and not spend just for these points. End of the day, they don’t fetch you huge returns on your spend as one might imagine, but still gets you something which you may or may not feel happy about.  If you still are looking for utilizing the reward points, here are some ways to maximize it.

Identify spending pattern and choose the right card

Different cards offer rewards for the purchase of different items. While one card offers higher fuel points, others may offer grocery or air tickets or a hotel booking. So, choose which card best suits your spending and use it for maximum points. Some premium credit cards can give you access to VIP lounges in airports across the world. I know it may not be as useful during this time, but hey, times will change, and we’ll start to fly again normally!

Look for Welcome and Promotional Offers

Premium credit cards, the ones with an annual fee, provide excellent welcome bonuses such as huge rewards points or a gift voucher. Sometimes, these cards offer promotional discounts and rewards. Do take advantage of those as well. Although, this article does not promote any brand, here are some credit cards with an exciting welcome bonus.

Grab additional offers on festive seasons

Almost all cards have some additional reward points, cash back or discounts for purchase (especially online) during the festive season. See if your card qualifies for it and try to grab those discounts. These discounts are as good as up to 10% of the purchase price, if not more. 

Watch out for any additional rewards on select days

Although there are always some discounts or cashback for using a particular bank’s credit card, during some non-festive days there could be additional discounts on those cards. Look for those at the time of your shopping and collect them.

Combine Points

If you have multiple credit cards from the same bank, there are high chances you could combine these points into one large chunk and redeem them. Since most companies offer multiple loyalty programs on various cards, they should be providing you with this option of combining smaller points from multiple cards onto one. Individually when those points may not be that useful, when combined, they could get you some bigger benefit while redeeming. 

Check for reward points expiry

This is the most important of all. You may have been very nit-picky in collecting reward points during your purchase, but if you forget when they expire, then all your efforts are in vain. So, make sure you remember to use your points or offers before they expire. At the time of expiry, if you are not able to redeem them for some item, all cards have cash redemption. You can redeem your points for cash and use it to spend later or pay a part of your credit card bill. 

The next time, when you take out your credit card on a spend, think of all the above points and ensure you reap maximum benefits. Happy spending!

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