Dos and don'ts for credit-card users

Credit cards allows holders to balance their spending over the course of a year by buying goods and services as needed but paying later. They can be an effective financial planning tool if used smartly. But they can also turn evil by tempting you to buy things that are unnecessary or that you can't really afford. And if you can't pay off your balance by the due date each month, you are subject to a penalty rate.

So, here are some simple tips to help you use the plastic cards wisely.

Carry only two credit cards

This is to avoid getting into a debt trap. Two credit cards are enough for disciplined users. If you keep many cards in your wallet, impulse buying could lead you to run up credit on one card after another very quickly and end up with the headache of paying off many bills.

The two cards should be from different issuers to get more diversified privileges. Also, you can gain more benefit from credit cards if you can set their billing cycles such that the due dates fall 15 days apart.

Credit-card issuers charge an annual fee and a penalty rate, though this does not vary much from issuer to issuer as the Bank of Thailand limits it to 20 per cent per annum. The card issuers also offer incentives - such as point redemption, cash back, travel insurance, discounts or special offers at merchants - and services such as roadside assistance and free use of lounges at Suvarnabhumi Airport. All these are factors you should take into account when deciding which two credit cards to use. Most issuers are offering a lifetime fee waiver, so opt for one of these cards. Also, the feature of at least 1 per cent cash back on purchases is more attractive than point redemption, as you pay less.

Usage fees and convenient payment venues are another important factor. Some banks levy a service fee of as much as Bt30 per transaction for different credit-card issuers.

Always pay off the due balance

Every month that you don't pay off the due balance will leave you paying more in the long run because the interest you owe will be added to the due balance and a late payment penalty is levied. Moreover, you might be put on the credit bureau's blacklist if you fail to pay even the minimum requirement.

Keep track of all purchases and compare your receipts against monthly statements

The receipts help you know how much you have to pay and to be sure that you really did make all the purchases listed in the statement. If you see something that does not look right, you can call the credit-card issuer and question it.

Use credit cards to pay for your utility bills or services

You get a triple windfall from paying utility bills through credit cards. One is the longer payment period, another is accumulation of points, and the third is paying only one service fee. Instead of paying Bt10-15 on each electricity, water, fixed-line and cell-phone bill at the post office, bank or service counter, you can pay one service fee a month by using the card.

Don't ask for a permanent credit-line increase

You might go broke with a higher credit line if you don't have sufficient financial discipline. It is smarter to ask for a temporary increase in credit limit if you have an emergency.

Don't use cash advance through credit cards

Withdrawal of cash through credit cards carries a high fee of 3 per

cent of the amount, plus interest on the unpaid amount. For instance, if you withdraw Bt20,000 with a credit card, you'll have to pay about Bt933 for one month's borrowing (based on an interest rate of 20 per cent per annum). The best way to avoid using the cash-advance service is to tear up the paper bearing the pin code as soon as it is given to you. That way, you won't remember the pin code and will not be able to use the service.