A credit card is a double-edged sword and can harm you if you do not use it properly. It can land you in a debt trap in addition to having many other consequences. Read on to understand why it is vital to pay your credit card bill on time - and the best way to pay.
If you don’t pay your credit card dues on time, you will have to pay a late fee depending on the outstanding amount. You also have to pay the interest from the date of the transaction and lose the free credit period. The interest charged on the credit card outstanding is exorbitant. Moreover, your default will be reported to credit information bureaus such as Experian, Equifax, and TransUnion CIBIL. Consistent default in paying your credit card dues can impact your credit score. Bad credit history has severe consequences on your creditworthiness. It can significantly affect your ability to avail of credit from the financial system for a very long time in future.
If you pay the monthly outstanding on your credit cards on time every month and do not accumulate debt, the probability of falling into a debt trap is eliminated. Timely payment of credit card dues can improve your credit score. A high credit score helps you avail of various credit facilities from the financial system in future, as prospective lenders feel encouraged by your financial discipline. Home loan lenders even offer lower interest rates on home loans for people with a good credit score. A CIBIL score of more than 750 is considered good for availing of a home loan, and having a credit score of more than 800 can get you lower interest rates.
Since the credit card billing cycle is predefined and fixed, you can set a phone reminder one or two days prior to the due date. You can also set up an autopay facility and avoid default in payment of your credit card dues. Even if you set an autopay for payment of your credit card dues, ensure that the requisite balance is maintained in your account. You can set the alarm for this as well. In case you use more than one credit card, it is recommended to maintain a calendar of due dates for all the credit cards, as the payment due dates may be different for different credit cards.
The best way to pay your credit card dues is by paying in full before the due date. This way, you get a better credit score and an uninterrupted free credit period in respect of the transactions on your credit card. However, if you have incurred huge expenses on your credit card during a particular billing period and do not have the requisite money to pay your credit card bill, you can pay the minimum 5% of the outstanding amount without being labelled as a defaulter. Since the carried forward outstanding amount comes with a very high interest rate, do not make this a habit - it can land you in a debt trap.
If you maintain discipline in your monthly budgeting for expenses, the chances of overspending on your credit card can be minimised. You won’t need to fall back on the minimum payment option. You can also avail of a balance transfer, through which your credit card outstanding can be transferred from one credit card company to another if you see any interest rate arbitrage between the two. It will also get you some breathing time to arrange for funds to pay the outstanding amount.
Since credit cards offer you the flexibility of payment and convenience, you should have one and use it carefully. IDFC FIRST Bank offers a lifetime free credit card with higher reward points, low interest rates, interest-free ATM withdrawals, and various other unique features.
Apply for your IDFC FIRST Bank credit card today!
Disclaimer: This article is published in association with Excellent Publicity and not created by TNM Editorial.