Credit cards means different things to different people. To some, it is a easy way to spend. Just swipe the card and you can buy anything, anytime, anywhere. To others, it is convenience. You no longer have to carry cash. But the 28 sq cm of plastic in your wallet is also the key to a treasure trove. If you are smart user, you can use it to unlock the myriad benefits that come with a credit card. Of course, you need to watch out for the pitfalls that include high interest rates on rollovers, hidden fees and the dangers of falling into a debt trap. But if you are a disciplined borrower, a credit card can actually be a source of free money.
Interest rates are on the rise and borrowing is costlier. But your credit card can help you get an interest-free loan for up to 50 days. Credit cards have a one-month billing cycle and customers usually get 20 days to pay bill. If you pay the entire bill by the due date, no interest is charges on the credit. So, if you time your purchases correctly and buy at the beginning of the cycle, the charges will appear only in the next month's bill and you could get up to 50 days of interest-free credit, or free money.
This strategy works best if you have two or three credit cards, each with a different billing cycle. You can get your billing cycle changed to be able to optimize on this interest-free credit.
Do keep in mind that this is possible only if you settle your credit card bills in full by the due date. If you roll over the balance by paying the minimum 5% of the bill, you are charged 2-3% a month on the unpaid amount. Plus, you don't get interest-free credit on new purchases if the billing period starts with a balance.
The more the number of cards, the more careful you have to be about billing cycles and payment dates. If you slip even once during a year, there's a hefty late payment penalty as well as the interest charges on the balance which could wipe out the gains of several months of careful spending.
Dropping a cheque in the drop box on or before the due date is not enough. Credit card companies consider a payment only when the cheque gets credited. So drop it at least 2-3 days before the due date if you don't want to be slapped with late fees and other charges.