Credit cards are the small beautiful bits of plastic that have revolutionized the payment industry. It is the most convenient method of making payments. Swipe your card after having your meal or purchasing the latest smartphone. You need not pay immediately as credit cards have brought in the concept of ‘Buy Now and Pay later.’ Credit cards are not just payment instruments. There are many more things about creditcards that one should know. We shall look at the five most important things to know about credit cards.
Make full use of the interest-free grace period
Every credit card comes with a unique billing cycle. The payments are due usually 50 days after the completion of the billing cycle. For example, if the billing cycle commences on the 20th of any month, the payments are due by the 15th day of the next month. If the billing date is 21st July, the payments are due on 15th August. Therefore, if you purchase items on your credit card on 22nd July, they come under the next billing cycle with the payment due on 15th September. Consequently, you get an interest-free grace period of more than 50 days. Determine the billing cycle of your credit card and time your purchases accordingly. The billing cycle does not change during the tenure of the card. However, if you desire, you can request the bank to alter the cycle according to your convenience. Knowing your billing cycle well allows you to make maximum use of the interest-free grace period.
Understand the concept of the minimum payment due
The interest-free grace period is available only if you pay the entire bill on the due date. If you do not pay the bill by the due date or if you choose to make a part-payment, the credit card interest will take over. The system will calculate interest at the contracted rate on every unpaid item on your credit card bill from the date of the debit to the credit card account. It is a retrospective calculation. If you are not able to pay the entire bill, the card does not become invalid. You have the facility to pay the ‘minimum amount due’ on the credit card on or before the due date. Usually, it is around 5% of the bill amount. However, if you have availed the EMI options, the system adds the EMI amount to the minimum amount due. You can pay this amount and keep the card alive. However, the unpaid amount will attract interest at the contracted rate.
Know your APR; they determine the interest payments
Know a thing or two about the interest rates on your credit card outstanding amounts. These rates are the highest in the industry. They range between 3% and 4% per month. Therefore, the annual interest rates work out to 36% to 48%. The rates vary from card to card and bank to bank. You have the benefit of an interest-free grace period on the one hand and the abnormally high-interest rates on the other. Hence, people refer to credit cards as an excellent friend, but the worst enemy.
Credit cards have a variety of fees
Not all credit cards come free of cost. Most of the credit cards come with annual renewal fees. Also, there are many more charges that can catch you unawares. Let us look at some of them.
- Annual renewal charges – Payable on renewing the credit card on a yearly basis
- Cash advance fee – Credit cards allow you the facility to withdraw cash up to a pre-determined limit from all ATMs. However, every cash withdrawal comes with a cash advance fee. Also, the cash withdrawals attract interest at the contracted rate from the date of withdrawal up to the date of payment.
- Late payment fee – You have to pay the credit card bills on or before the due date. Any delay in the payment attracts late payment fees.
- Foreign transaction fee – Every time you use your credit card in a foreign country, you incur international transaction fees.
- Cheque bounce charges – If you pay the bill using a cheque, and the cheque bounces due to lack of funds; the system charges a cheque bounce fee.
- Cash payment fee – Some banks levy a cash payment fee when you pay the credit card bill in cash. It is to discourage cash payments.
Know more about the rewards points and redemption
Credit cards are not only about interest, fees, and penalties alone. You get a lot of discounts and rewards points when you use your credit card at select outlets. It could be petrol bunks, restaurants, booking travel tickets, and so on. You get rewards points in the form of discount offers or air miles that you can redeem at selected locations. Some of the Top Credit Cards come with a waiver of annual fees, foreign transaction fees, and so on. You have credit cards that waive transaction surcharge at fuel outlets. Some cards also get you free fuel on the accumulation of rewards points. You can redeem these rewards points while booking air tickets, hotel accommodation, and so on.
Yes, credit cards have all the qualities you expect an excellent friend to have. Make the bill payments in time and in full to maintain the friendship with the credit cards for life. You will not find a better and more obedient servant than the credit cards.
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