When using credit cards, you should avoid some common mistakes that could be costly and even end up in a debt trap.
Credit cards can be useful for instant cash, especially during emergencies, but if not used with caution, they could easily become a curse in disguise.
For starters, there may be a number of reasons why you would like to close or cancel a credit card. For example, you could be spending unnecessarily and heading into a debt trap or not using some of your credit cards at all.
Therefore, when using credit cards, you should avoid some common mistakes that could be costly and even end up in a debt trap. A debt trap can be financially detrimental and you could be accruing interest unless outstanding payments are paid in full.
Here are some important things to keep in mind when using your credit cards:
1. There is no interest-free period for cash withdrawals
Credit cards typically offer an interest-free period of up to 51 days at the point of sale (POS) of merchants or online. However, this feature does not apply to credit card ATM cash withdrawals. Interest will be charged from the day you make the withdrawal.
2. Credit renewal
Renewing credit means not paying your credit card fees in full on or before the due date. This generates high interest rates or financial charges that are around 3.5 percent per month and between 36 and 45 percent annually.
In case of making a partial payment of the credit card fees, be sure to pay the rest of the amount as soon as possible without waiting for the next due date, to keep interest charges low.
3. Credit card expiration date
There is a credit card penalty that could be up to Rs 750 to Rs 1,000 depending on the amount if the last date to pay is missed. The penalty varies depending on the card issuer and the outstanding amount, which is usually at least 5 percent of the invoice amount. Therefore, experts say that an automatic debit mandate with the bank, which ensures that credit card payments are made on time, is an ideal option.
4. No interest-free period limitations
All credit cards typically grant a free credit period of 45 to 51 days before the expiration date arrives. That said, if the entire amount of the invoice from the previous cycle has not been paid, there is no interest-free period. Therefore, you will not get interest-free days on any new purchases, if you do not pay the full amount of the bill on time and you will also end up with a high cost of interest.
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