If you think making partial payment cuts down interest costs and the interest charged is on the due amount and not the full amount - you can't be more wrong.
There are various myths about credit cards, which leads most to the credit card debt trap. For instance, we have all faced this problem some time or the other — when you have missed your credit card payment deadline just by 3-4 days, yet the company still charges high interest?
After getting an unreasonably high bill, we call the customer care and end up shouting at them. However, what most don’t understand is what the problem is and how are the charges added.
Experts suggest cardholders should know the real issue when a charge is levied on a credit card and how to avoid such changes so that the same mistake is not repeated again.
Here are a few myths busted surrounding credit card charges:
1. Myth: Interest is calculated from the due date. It is fine to ignore the payment date of the credit card bill and payment can be delayed by a day or two.
Truth: Most people think that interest is calculated from the due date, but that is not the case. If a cardholder misses his/her payment, even by a few days, interest is calculated from the date of purchase. This is where cardholder goes wrong when they ignore the due date and think delaying the bill by a day or two won’t invite additional charges.
2. Myth: Paying the minimum amount due doesn’t add interest to the credit card.
Truth: By paying the minimum due amount, the cardholder just cuts on his/her late fees. Experts say paying only the minimum due amount is not good. In this case, the company still charges the cardholder interest for the period. Paying only the minimum due amount, however, doesn’t impact the cardholder’s credit score.
3. Myth: Fresh purchases don’t add to the unpaid balance. You roll over your credit card bill or you do miss the last payment on your credit card and decide you’ll make the payment next month. In between the time you make a fresh purchase, thinking you’ll pay the money all together next month, without additional charges.
Truth: Note that, when a credit card bill comes with the unpaid amount and fresh purchases, interest is charged on the whole amount. Hence, if you have not paid your full amount as per your previous balance, the interest is calculated from the first day the purchase was made. The grace period that is offered by the bank, which is generally 45-50 days from the date of purchases, ceases to exist if the payment is not made, even for fresh payments.
4. Myth: Making partial payment cuts down interest costs. The interest charged is on the due amount and not the full amount.
Truth: Even after cardholders make the partial payment, the interest is calculated on the total amount. If you think that by making a part payment you will be saved from the full interest getting added on your credit card, you are wrong. For instance, if you have Rs 10,000 as your credit card due and you pay up Rs 6,000, then interest will be charged on Rs 10,000 for that period. Note that, even after making a part payment, the same interest is added, however, with part-payment the burden of paying the full amount next time reduces.
5. Myth: The credit cycle doesn’t matter, it is not important to know the cycle. An interest-free period is for 20 to 30 days on a credit card.
Truth: Knowing the credit cycle date is important as the interest-free period is not just till the end of the month, it is generally 45 days which can also be extended up to 60 days. This way while making a purchase, cardholders can plan and time their purchases to avoid getting additional charges. To know the credit cycle, keep a track when your credit card bill is generated, for the reason that making a purchase on that date will give you an increased interest-free period.