Here are a few things to keep note of while using a credit card in order to avoid interest charges or late fees.
Shop till you drop! Heavy discounts on your favorite brands and other such high decibel deals and offers rarely go unnoticed by the shopaholics. Till the time you are spending within limits and buying stuff that you need or were longing for, even using a credit card to fund those purchases is fine. However, overuse of cards or if credit card spends are not properly managed, can lead to a financial crisis.
Here are a few things to keep note of while using a credit card in order to avoid interest charges or late fees of any kind.
Do not roll over credit card balance
All credit card issuers require the credit card holder to pay at least 5 per cent of the bill amount and are allowed to roll over the balance for next month’s bill. Unless hard pressed for funds, avoid doing this and pay in full. Pay the entire outstanding amount well before the due date and do not roll over any amount on to the next billing cycle. The interest amount or the finance charges on the unpaid dues may look small but in percentage terms it is around 42 per cent per annum.
Even while paying credit card bills online, some issuers keep the option to pay only 5 per cent as the default button. Opt for full payment and save on interest cost to fund your lifestyle expenses within the interest free period.
Why to avoid new purchases if rolled over
If you have opted to roll over some dues to the next billing cycle, it’s better to avoid making any fresh purchases until you have cleared all previous dues. Any new spends on the card will not get the benefit of interest-free period if there are outstanding dues on the card.
Cash from ATM
Credit card spending while shopping online or offline from a merchant establishment gives you an interest free period of around 45 days or more. It means you can spend today and pay later within 45-51 days without interest. However, if you withdraw cash ( up to the cash limit) from an ATM, you have to pay interest from day one. There could be a transaction fee for cash advances as well. Simply avoid it unless there’s a financial emergency that has to be met at any cost.
Do not miss due date
Missing the due date and not paying the mandatory 5 per cent of dues within the last date of the credit card bill will get very costly. The late payment charges could be as high as Rs 1000 depending on the credit card outstanding amount. Illustratively, for not paying an amount of Rs 10000, there may be a late payment charge of Rs 750, which is 7.5 per cent for not paying on time!
To bring the best out of credit card usage, opt for standing instructions for debiting your bank account with full outstanding dues on the due date. If there are planned expenses, use the credit card around the billing date to maximise the interest free period. Use credit cards optimally to build a good credit profile over the years.