Using a credit card can be incredibly risky, even more so if the user is inexperienced and unaware of the card’s interest rates, penalty fees, and charging trends. Once caught in this interest and penalty trap, escaping becomes extremely tough. Banks typically provide a grace period of approximately 60 days for paying credit card payments. Payments made beyond this time period are subject to a credit card penalty interest rate. You will be required to pay interest on any outstanding balances and interest on any purchases, in addition to the penalty charges.
Here are a few ways you can eliminate the credit card interest penalty rate:
Avoid credit card payment delays. If you have one or more credit cards, keep track of your credit card statements or create a billing cycle calendar. If you pay online, select the automated payment mechanism to prevent missing payment deadlines.
“Though paying minimum dues will help you avoid a penalty, but you will definitely be charged the interest on the remaining balance. Moreover, rolling over the credit card dues may lead to extremely high interest rates between 35% – 48%, and that’s when you start sinking into the debt trap. So, you need to pay the balances in full before the due date,” said Manish P. Hingar, Founder Fintoo.
“It is critical to clear your balance every month. You can set up an automatic settling of dues with another account to mitigate the risk that you forget. Note that just paying the minimum balance will not eliminate interest charges,” concurred Rohit Sen, Co-founder & CEO, NIRA.
Keep an eye on your credit card limit and periodicaly monitor your credit card statements to guarantee you haven’t exceeded it. Contact your bank if your credit card limit has been decreased or increased. If you stay within your credit limit, you can avoid paying the credit card penalty rate.
“Stay disciplined. Use credit cards wisely and do not indulge in purchases that may be difficult to pay for. In the case of big-ticket-sized expenses, opt for easy EMI options so that there are no defaults. Credit card defaults can impact credit scores. Credit scores are essential as they determine the cost of borrowing,” said Subhrangshu Chattopadhyay, National Sales Head, CRIF High Mark.
To summarise, escaping the debt trap might be challenging. Thus, it is prudent to limit credit card expenses, keep within the credit limit, and maintain a disciplined payment schedule for credit card balances in order to avoid the credit card penalty rate.
If paying for large-ticket purchases becomes challenging, consider converting the debt into manageable equated monthly instalments (EMIs) or transferring the balance to other credit cards with a low minimum balance.
“If you are unable to pay your credit card dues in full amount, instead of missing out on complete payment and inviting a hefty penalty, you can opt for the EMI option which will again charge you an interest rate of around 2%-4%, but it will be lesser than the penalty of course,” said Hingar.
Download Money9 App for the latest updates on Personal Finance.