Here are a few crucial credit card tips for beginners to avoid debt settlement anytime in future.
Besides impacting our lives, the coronavirus pandemic is also putting pressure on the personal finance of individuals. While some companies have resorted to pay-cuts, there are others who have reduced their working strength. Even the self-employed depending on their business earnings are seeing reduced income on account of lockdowns and restricted movements in the country.
In such circumstances, basic household expenses including expenses on long term goals such as child education, marriage etc. are still to be met. At times, there is a pressing need to go for the replacement of consumer goods and other day-to-day electronic goods in the house. With limited or restricted resources, one often resorts to the use of credit cards.
Usage of credit cards may help you tide over immediate fund crunch but they have to be dealt with carefully. Any credit card mismanagement may roll over into a big debt burden which may become too costly to service. Ultimately, in such a case, one has to go for debt settlement but the credit profile is impacted negatively.
There is a credit card spending limit that you get when a card is issued to you. Try not to exhaust the limit each month as it may impact your credit score especially if there is a roll-over of the dues.
Similarly, there are a few other crucial credit card tips for beginners to avoid debt settlement anytime in future.
1. Pay full amount on due date
It is important that you do not roll over credit card dues. It means, pay the total outstanding amount on the due date. Although, it’s mandatory to pay only 5 per cent of the due amount each month, avoid making partial payments as far as possible. Rolling over the outstanding balance to the next billing cycle will incur an interest rate of 3-4 per cent on monthly basis. If you keep rolling over and simultaneously make new purchases each month, the interest portion may balloon and soon one would fall into a debt trap.
2. EMI or Balance Transfer
In case you are not in a position to make a bill payment in full and especially if the amount spent on any one or two items is high, ask the credit card issuer to convert it into EMI’s. By converting to EMI, you will end up paying a lot less than what you would have paid as normal credit card dues. Alternatively, you may transfer the outstanding amount to another credit card at a reduced interest rate. It’s possible only if you hold more than one card.
3. No interest-free period
Typically, there is an interest-free period on purchases made on the credit card. It can be as low as 18 days and can even go up to more than 45 days. However, there is a big catch before you can avail it. In order to avail the benefit of an interest-free period, the outstanding amount has to be nil. So, if you roll over a certain amount to next month’s billing, there’s no interest-free period on the new purchases.
4. Auto debit from your account
Generally, the late payment fee and interest on delayed payment are very high. To ensure you make payments on time, opt for auto-debit. By giving standing instructions to your banker, the entire credit card bill amount will automatically get deducted from your bank account on the due date. There is another option to pay only 5 per cent but it’s better to pay off the outstanding dues in full.
5. Avoid cash withdrawals
While spending made on a credit card comes with an interest-free period, there is no such benefit in the case of cash withdrawals. You can use credit cards to withdraw cash from ATMs but the interest starts to accrue from day one in most cards. Cash withdrawal on the credit card does not come with an interest-free period. There could be a one-time fee plus the interest charges that starts from day one till you repay the amount. Simply avoid it unless hard-pressed for funds at short notice for an emergency event.