UAE: I plan my daily expenses and monthly budget using a credit card, here’s how I do it
Expat in UAE on how she treats credit card limit as carefully as her salary
Dubai: Many people have been using credit cards to manage their expenses effectively. But despite having a credit card, many customers are reluctant to use it because they fear receiving more monthly charges from the bank.
There have been many stories of people being caught in a debt trap by using credit cards. If you use credit cards imprudently, there are possibilities of incurring losses. But you can gain a lot if you know how to use credit cards effectively.
Let's understand how one can use credit cards without paying exorbitant bank fees.
How I use my credit card and debit card
I use my credit card to make monthly bill payments, including utility, mobile, landline, cooking gas, fuel, road toll Salik, smart card for transport Nol, medical, etc. I make sure that I pay the total amount of bills on the due day itself so that I don't have to pay the interest on credit cards.
On the other hand, my debit card indicates how much money I have in my account. When a bill is due, I don't pay it from my debit card, but I use the credit card. That way, I'll get some time to repay the amount and valuable credit card points as well without paying any extra amount to the bank.
I also make sure that I don't use several credit cards. When you use only one credit card, you have control on your spending and know how many points you have earned per month. Having too many credit cards makes it difficult to keep track of your spending and would be an unnecessary distraction. It also helps me boost my credit score because I pay the total amount on the due date.
Having too many credit cards makes it difficult to keep track of your spending and would be an unnecessary distraction
I use my debit card purely for managing my monthly salary, withdrawing cash and transferring money. You can also set the daily, cash withdrawal, and cash transfer limits for security purposes of your card.
Here are my two personal tips to use credit cards effectively:
Tip #1: Use credit card for daily purchases
Instead of using cash or debit cards, you can pay from your credit card for daily purchases. That way, you can earn points and also use the cash on a debit card for some other purposes for the time being.
You can also build a strong credit score using a credit card. Since you pay the total amount to the bank on the due day, you won't incur interest as well. When you pay your credit card bills regularly, it will also help boost your credit limit.
Tip #2: Set a daily purchase and payment credit limit
There would be a daily purchase credit limit for your credit card, depending on various factors, including your salary and credit score. The banks set a daily purchase limit for each credit card and there would be a maximum amount one could spend using a particular card.
If your purchase amount exceeds the set limit, the transaction will either be declined, followed by a notification on your card-linked mobile device, or you would be prompted to enter your card PIN when swiping your card. This way you are made aware that you have exceeded your daily spending quota.
If you think your card's daily credit limit on purchases is too high or too low and you can afford to change the limit, here’s how you go about it.
5 key factors to note when using credit card to pay bills
1. Due date and statement closing date
When you use a credit card, you should keep an eye on two important dates. They are the statement closing date and the payment due date.
While the statement closing date indicates the last date of your billing cycle, the payment due date is the last day for you to pay the credit card bill.
The interest rates are applicable if you don't pay the bill on the due day. In most cases, the statement closing date would be around 20 to 25 days before the payment due date.
2. Automatically schedule routine bills
To make the most of credit cards, it is essential to pay your credit card bills correctly. You can set the auto-pay option on your debit card or online banking but make sure that you have the required amount in the account for paying the card bills.
You can also request the bank to change the bill due date to match your salary payment date. Though many credit cards are available in the market, you can choose the one that offers the best one that earns you rewards, with the higher credit limit.
3. Using rewards, points to your advantage
Credit cards provide various benefits by offering special packages and rates for customers. When you go grocery shopping, some credit card providers offer more points, and you have to find out exactly what benefits and reward points each credit card offers.
Some cards offer frequent flyer miles programmes, which can help people travelling frequently. Also, it is essential to spend judiciously while using a credit card.
If you go on purchasing thinking that you can pay later, it might create problems for paying the full amount on the due date and thus attract higher interest rates on your card bills.
4. Closely monitoring credit card statements
When you receive the credit card bill, you must check the statement to understand whether everything is properly included. If you find some anomalies, you should contact the bank immediately.
Instead of using cash or debit cards, you can pay from your credit card for daily purchases
When you go through the statement, you will also get an idea of your monthly expenses. If you think some of the purchases could have been avoided, you can approach the next month with more planning.
5. Monthly budget
When you have an idea about the likely expenses for the month, you can plan better. You can make a list of all possible costs and make your budget accordingly. When you buy products online, ensure whether the particular purchase could fetch you reward points.
As part of a promotion, credit cards provide seasonal offers, and if you can time some of your online purchases during the period, you can gain reward points and cash discounts. Some credit card providers also waive their annual membership fees for select customers.
#2: List basic payments – This includes rent, utility, telephones (mobile or home connection), cooking gas connection, educational or any periodical fees, travel expenses (which includes fuel, Salik or Nol costs), medical expenses, and remittance (for supporting your family back home).
#3: Set up a beneficiary for your basic payments on your credit card
#4: Set up an alert or notification for payments for beneficiaries
#5: Track your monthly expense by analysing your credit card statement
#6: Set limit for daily purchase, transfer and withdrawal
#7: Set statement closing date and payment due date
#8: Make sure you have enough cash on your account on due date
Some go-to tips I follow when shopping cost-effectively with a credit card: Always strive to shop with a list, and preferably during sales and promotions. This applies to shopping online as well. My personal spending motto is: “Go shopping when in a good mood - (don't shop when you're hungry)”. Finally, don’t forget to set up a monthly spending limit and auto-alerts to when you exceed your spending limits.