Chandan, Pune cksonal123@gmail.com

My monthly salary is Rs 50,000. I have two credit cards with limits of Rs 1,50,000 in each. What will be my annual expense limit through these cards?

A credit card with a limit of Rs 1,50,000 per month means the amount of your monthly expense is limited to Rs 1,50,000. If you spend Rs 50,000 from one card in a month and return Rs 10,000 out of it, then your limit would be Rs 1,50,000 - Rs 40,000 + interest on Rs 40,000. and the whole amount will be payable next month. Every month if the minimum amount is paid, it keeps on accumulating interest on outstanding. Hence, at the end of twelve months the limit will be Rs 1,50,000 (outstanding + interest payable). Credit card limits are calculated every month. It is advisable to pay the outstanding balance first while keeping aside the amount you want to spend at the beginning of each month. As soon as your salary is credited to your bank account, utilise it for your variable expenses. Use your credit card smartly and utilise the limit without paying extra interest on it. Ideally, use it only for an emergency.

Try not to exceed 20 per cent of your monthly income, even though you have a higher credit limit. In my opinion, splurging with plastic money will burden you with heavy credit card debts. The interest rate is very high, around 3-4 per cent monthly on the outstanding balance.

Hina Shah, Certified Financial PlannerCM & Coach, LUHEM