5 smart tips to build a savings plan with your credit card

Making a credit card part of your long-term savings plan can be a smart financial decision. Instead of seeking credit cards merely for spending purposes, they can be leveraged to earn rewards, cashbacks, associated benefits, and manage expenses prudently.

With rising digital transactions and evolving credit card norms and regulations, here are five tips for cardholders to optimise credit cards for saving purposes.

1. Choose the right card that matches your spending

The first step is to select a credit card that is aligned with your fundamental spending habits. These habits can be associated with groceries, travel, dining, day-to-day expenses, or utility payments. Cards offering category-wise cash rewards or points can provide maximum benefits.

For example, credit cards designed for travelling can provide complimentary air tickets, travel benefits, and lounge access. Whereas shopping cards boost cashback on retail spending. A fair comparison of interest rates, annual fees, and associated charges is crucial before taking the final decision on which credit card to select is always the correct way to go ahead with the selection of the desired credit card.

2. Use credit cards for regular purchases to maximise rewards

Regularly using a credit card for day-to-day expenses such as gas, shopping, electricity, and groceries increases reward points or cashback opportunities for cardholders. There are several merchants that provide discounts and schemes exclusively for credit card users. Furthermore, meeting the monthly credit card spending can also waive annual fees, boosting savings further.

3. Manage expenses with EMI options when making big purchases

When you are going ahead with converting large amounts into Equated Monthly Instalments (EMIs), through credit cards, this helps in maintaining cash flows properly. It also permits credit card users to invest savings from other sources in different asset classes for wealth generation simultaneously. Still, you should ensure that the EMI interest rate never outweighs or overpowers the benefits of this strategy.

4. Pay your credit card bills fully and on time

If you are going ahead with credit cards, you should make sure that you pay the complete payment due on time without delays. Focus on avoiding making only the minimum due on credit cards to prevent high-interest charges. Paying the full outstanding balance within the due date protects your credit profile, boosts your credit score, and brings down avoidable costs.

Further, keeping the credit utilisation ratio below 30% is advisable for a healthy financial profile. Following these prudent principles can ensure that using credit cards becomes a pleasant experience for cardholders.

5. Track your spending and adjust regularly

Once you become familiar with the pattern of credit card usage, i.e., credit card bills, the cycle of repayments, related fines, and other associated issues. Post the same, you should regularly analyse your credit card statements to check for mistakes and acknowledge spending patterns.

Switching cards or reallocating expenditures among several cards based on evolving offers and personal goals can help boost savings. Now, to further propel efficient credit card usage, you can also use the 2/3/4 rule of credit cards.

What is the 2/3/4 rule for credit cards?

This is a simple credit card usage rule suggested by professionals. It advises paying at least twice the minimum due, keeping credit utilisation in check and under 30%, and definitely clearing dues within 45 days to avoid piling up of interest charges. These simple rules can help in keeping your credit score high and your credit profile neat and blemish-free.

Hence, credit cards, when used smartly with focus and discipline, can complement a traditional savings plan by providing indirect savings and financial benefits. Cardholders should prioritise understanding these credit tools, their pros and cons, carefully before using them.

It should be clearly acknowledged that credit cards, on a fundamental level, also have several glaring drawbacks, such as overspending risks, debt accumulation, hidden fees, and the possibility of damaging credit scores. That is why the decision to use credit cards should only be made after proper due diligence and professional guidance.

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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.