Important things to keep in mind while using a credit card

While using credit cards, you should avoid some common mistakes which could turn out to be costly and can even end up making you fall into a debt trap.

Credit cards could be of help for instant money, especially during emergencies, but if not used cautiously, they could easily become a curse in disguise.

To start with, there could be multiple reasons you would want to close or cancel a credit card. For instance, you could be either spending unnecessarily and heading towards a debt trap or not using some of your credit cards at all.

Hence, while using credit cards, you should avoid some common mistakes which could turn out to be costly and can even end up making you fall into a debt trap. A debt trap can be financially damaging, and you could be piling up on interest unless the outstanding dues are paid back in full.

Here are some important things to keep in mind while using your credit cards:

1. No interest-free period on cash withdrawals

Credit cards usually offer an interest-free period of up to 51 days at the point-of-sale (POS) of merchant establishments or online. However, this facility is not applicable on ATM cash withdrawals using a credit card. You will be charged interest from the day you make the withdrawal.

2. Rolling over the credit

Rolling over the credit means, not paying the credit card dues in full on or by the due date. This incurs high interest rates or finance charges which hover around 3.5 per cent per month and between 36 per cent and 45 per cent on an annual basis.

In case of making partial payment for credit card dues, make sure to pay the rest of the amount as early as possible without waiting for the next due date, to keep your interest charges lower.

3. Credit card due date

Credit card penalty gets levied which could be as high as Rs 750 to Rs 1,000, depending on the amount if the last date to pay gets missed. The penalty varies as per the card issuer and the amount of outstanding, which is usually at least 5 per cent of the bill amount. Hence, experts say an auto-debit mandate with one’s bank – which ensures credit card payments are made well in time — is an ideal option.

4. No interest-free period limitations

All credit cards usually give 45-51 days’ free credit period before the due date arrives. Having said so, if the entire bill amount of the previous cycle has not been paid, there is no interest-free period. Hence, you will not get any interest-free days on any new purchases, if you do not pay the entire bill amount on time and will also end up with high interest cost.