Outlook Money
With little understanding of how the system works through billing cycles, interest rates, or rules of repayment, a small swipe can lead to large debt over time.
This is the rate at which the outstanding amount will incur interest if the full amount of the bill is not repaid by the due date.
This is the least amount that needs to be paid before the due date in order to keep the account active. Paying only this amount prevents penalties, but keeps the remaining amount rolling forward with interest.
This is the ratio of utilisation of the available limit on the card and is calculated as the ratio of the outstanding balance to the total limit.
The grace period refers to the period between the end of a billing cycle and the due date. No interest is charged during this time if full payment is made.
The billing cycle is the time between two statement dates, usually 28-31 days apart.
Withdrawing cash using a credit card seems very convenient, but is costly. There is a fee of 2-3.5 per cent of the amount withdrawn as cash advance fee, and interest is charged immediately with no grace period.
There is a late charge of usually Rs 100-1,000 levied if a payment is missed, depending on the outstanding amount. Other than that, it can also have implications on the credit score.
Most cards provide either reward points or cashback on transactions. Reward points can be redeemed for store purchases, online shopping, flight tickets, or vouchers, while cashback is a small return on spending.
When used with caution, credit cards can be valuable financial tools. While they offer convenience, short-term credit, and rewards, understanding the terms related to your credit card is how to avoid making costly mistakes.