Summary of this article
Everything from only making minimum payments to maxing out your credit limit can hurt your credit score, pile on interest charges, and contribute to your debt.
Making minimum payments will help you avoid late payment fees. However, any remaining balance on your credit card bill will continue to accrue interest charges.
Regularly visit the terms and conditions section of your credit card’s reward points program to keep a check on when your reward points will expire.
Credit cards are like a double-edged sword. Used correctly, they are convenient payment instruments that also offer rewards points, cashback benefits, and short-term financing at favourable rates of interest. Use them carelessly though, and they’ll transform into money-guzzling monsters. Everything from only making minimum payments to maxing out your credit limit can hurt your credit score, pile on interest charges, and contribute to your debt. Avoid these credit card mistakes to save money and improve your finances this year.
Making Cash Advance From Credit Card
Did you know that every time you take a cash withdrawal from your credit card, you’ll be charged a cash advance fee of up to 3.5 per cent on the amount withdrawn? Plus, there are finance charges applicable from the very next day till date of repayment. Given that credit card interest rates can be typically as high as 48 per cent per annum, taking a cash advance from your credit card can seriously empty your pockets if repayment is not made within a few days. So, if you absolutely must take a cash advance from your credit card, repay the amount as soon as possible.
Making Only The Minimum Payments
Many cardholders who can’t pay their credit card bill in full each month, make only the minimum payment required. A common misconception about making minimum payments is that they don’t incur finance charges. In fact, making minimum payments will help you avoid late payment fees. However, any remaining balance on your credit card bill will continue to accrue interest charges. Paying only the minimum payment towards your balance can lead to a debt cycle from where it is hard to get out of.
Try your best to pay your credit card bills before the due date in full. If you’re unable to, you can try converting your outstanding balance into Equated Monthly Instalments (EMIs) or get your larger purchases converted into EMIs. You may also look at transferring your credit card balance to another credit card which has a lower interest rate or no interest rate on balance transfers or get a personal loan to consolidate debt at a lower interest rate.
Keeping Credit Utilisation Ratio Above 30 Per Cent
Credit card lenders and issuers view credit utilisation ratios above 30 per cent as a measure of credit hungriness and hence credit bureaus lower down your credit score by a few points if you cross this threshold. So, always try to keep your credit card spends within 30 per cent of your overall credit limit. However, if you habitually cross this limit, you can request your credit card issuer to hike up your credit limit or get another credit card to hike up your overall credit limit, thereby lowering your credit utilisation ratio.
Neglecting To Plan Card Spends According To Your Interest-Free Credit Period
Interest free period is the period between the date of a credit card transaction and its payment due date. This period varies from 20 – 52 days depending upon the date of your credit card transaction and your credit card issuer. During this period, your credit card spends don’t incur any interest cost if you repay them on due date or before. In simple words, your credit card issuer is essentially lending you money free of cost to finance your card spends during this period. Try to plan your card spends (especially large ones) in such a way that you get maximum interest-free period for them.
Neglecting To Redeem Reward Points Before They Expire
Most credit card issuers give an expiry date to reward points accumulated by their cardholders. This time-frame is usually between 2 and 3 years, post which you can’t redeem these reward points. So, regularly visit the terms and conditions section of your credit card’s reward points program to keep a check on when your reward points will expire. Moreover, most card issuers also notify you about the reward points that are about to expire in your bill statements. So, redeem your reward points before they expire.
