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How to Choose the Right Credit Card

Adhil Shetty
Image source: katemangostar/Freepik

Finding your best credit card fit might be a tad challenging owing to the wide array of options in the market. Plus, the plethora of features and benefits associated with cards may add to the confusion.

That said, a credit card is much more than just another payment tool. When used responsibly, it can be a great tool to maximize the value of your spends and boost your savings with key benefits like cashback and air miles. Plus, being disciplined with repayments does a world of good to your credit score as well.

But choosing a card whose benefits are in line with your lifestyle requirement is the key. So, in order to find out the right credit card, it’s advisable if you look around and compare your options instead of blindly settling for the card your bank hands out.

Here are some tips to help you tide over the confusion.

Start with eliminating options you’re not eligible for: While choosing a card, it’s best if you start your research by eliminating cards whose minimum income requirement exceeds your income. This will narrow down your options.

Then identify your key credit card spending areas: Do you wish to use your credit card to purchase groceries? Or you think swiping it at a petrol pump will make more sense?  Are you someone who regularly shops online and would love to have a card that gives extra discounts on online purchases? Once you’ve identified your key credit card spending areas, it will get easier to further narrow down your options based on corresponding card benefits.

Choose a card category that’s best aligned with most of your key spending areas: So, if you’re someone who would want to use a card to purchase groceries, going for an option that gives cashback on groceries will make sense. Similarly, if you drive to work every day, a petrol card that waives fuel surcharge should be useful. What’s better is to look for a card that can help add value to most of your spends. For example, a card that gives cashback or multiple reward points on your essential spends and occasional online shopping or travel expenses is a great bet.

Consider tertiary perks: After you’ve settled down with your preferred card benefit category, look for tertiary perks like discounts at restaurants and movie theatres, deals on hotel bookings, exclusive privileges on international travel etc. and choose the ones that are closest to meeting your lifestyle requirements.

Most importantly, evaluate the cost of availing those benefits according to your budget: You should be able to take advantage of your desired card benefit – like cashback on groceries or reward points on online shopping – without breaching your monthly budget. No point in going for a card that gives 10% cashback on groceries over Rs. 10,000 when your total budget for groceries is Rs 3,000. Or a rewards card that gives 10,000 points on spending Rs. 1 lakh which can be redeemed for a Rs. 500 shopping voucher!

Remember, responsible borrowing is the foundation of savvy credit card usage and raking up a huge bill (to avail the benefits) and failing to make timely repayments will bury you in debt while severely impacting your credit score.

Keep other riders in mind: These include annual fees (does it make sense to pay it? Will you get any extra rewards to renew it, like bonus air miles?), participating merchant outlets (does the 3X shopping reward points apply to your neighbourhood supermarket, preferred petrol station or frequently-visited shopping portal?) and benefit capping (does it make sense if the 10% grocery cashback is capped at Rs 200 a month?).

So, it’s better to have some clarity on your monthly budget for credit card spends and your lifestyle requirements while choosing a credit card. And while it may be difficult to find a card that ticks all the boxes, even the second best option will be good enough.

Just ensure that you don’t go overboard with your credit card spends and don’t confuse it as an extension of your income. After all, the right credit card is the one that helps you save more, not spend more.

The writer is CEO, BankBazaar.com