Covid-19 has prompted both businesses and customers to turn to digital transactions. Transacting cashlessly with modes such as debit and credit cards, UPI and netbanking allows you to minimise contact and reduce the chances of being infected.

With even local businesses going online,you can now buy just about anything from the safety of your home.

E-commerce has come a long way in 2020. The digital habits formed now are likely to persist. Which brings us to the key point of this piece: shopping online is now a daily fact of life, but what’s the best way to transact?

Some modes of digital spending provide you no benefits beyond ease of use. But a feature-rich credit card not only provides those conveniences but also offers rewards such as cashbacks, freebies, and points you could convert into goods and services, the combined value of which may run into thousands of rupees every year. Here’s what you need to know about how to get the best out of your credit card.

How rewards work

Depending on the kind of credit card you have, many of your transactions may help you earn rewards. Rewards help you save money. The key is to maximise rewards with the help of the habit you have now developed, which is online shopping.

Many cards tie up with online businesses and help you earn rewards on many transactions but also accelerated rewards on select transactions. For example, one online shopping credit card from a government bank gives five points per Rs 100 spent online and one point per Rs 100 on other eligible spends, but it offers 10 points per Rs 100 spent when you shop with partner websites such as Amazon. This helps you if you are already a regular shopper at the partner website. Over time, your accumulated points can be converted into gift vouchers that can help you make additional purchases.

Why not other modes

Let’s consider your other options. If you opt for cash-on-delivery (COD), your benefits in terms of cashback and reward points is likely to be nil. The same may be true for netbanking and UPI where rewards such as discounts and cashback may be rare, one-time, or completely random.

The only other digital payment instrument that may be able to provide you consistent benefits is your debit card. However, these rewards too may be limited.

You may find that a credit card that provides above-average benefits for online shopping may be your best option. Not just that, a premium credit card for which there may be an annual charge may be able to provide bigger benefits than a lifetime free credit card.

Refer to the table where online shopping via COD has no benefit whereas planned online shopping with partner websites can lead to rewards worth Rs 9,501 in a year.

How to maximise rewards

To get the best out of your credit card, it is necessary to know the fine print to understand the rewards you’re eligible for. It’s also important that your card allows you to enjoy the lifestyle you desire. It should help you maximise the rewards from your unique spends.

If you don’t already have such a card, you may research the market for one. For example, if you love shopping at brand ABC, then it’s not useful to have a card that incentivises shopping with brand XYZ. You must also understand if caps apply on your reward. For example, one card may offer reward points with a one-year expiry while another card may not expire your points.

Similarly, one card may cap your cashback rewards in a month at Rs 750 while another card may let you enjoy unlimited cashbacks. Apart from these, your card may also provide privileges that help reduce costs and maximise gains.

For example, many cards provide free lounge access at domestic or international airports, gift vouchers on reaching spending milestones such as Rs 1 lakh and joining or renewal gifts such as e-vouchers or reward points.

What not to do

The benefits are attractive when one assumes that all credit card dues are being paid off in the same billing cycle. This allows the user to enjoy the card privileges and avoid late payment penalties as well as steep interest charges. Credit card debt is unsecured debt which is typically the most expensive form of borrowing.

Therefore, it’s critical to be timely with the payments and not let the debt snowball. Late payments could lead to hefty charges that may reduce the gains through rewards.

Use your credit card smartly, get greater value for your spends, but always pay your dues in time. This may prove more beneficial than a combination of cash-on-delivery, netbanking, debit cards and UPI.

The writer is CEO, BankBazaar.com