5 costliest mistakes to avoid while using credit cards

While using credit cards, make sure you do not commit some of the common mistakes that others do. The mistakes in using credit cards can be costly and can even end up making you fall in a debt trap. Once fallen into the debt trap, it can be financially damaging as a lot of interest will keep on accruing unless the outstanding dues are paid back in full.

Here are five common yet costly mistakes that every card user should avoid:

1. Don’t assume interest-free period on cash withdrawals

The purchases made on credit cards at the point-of-sale (POS) of merchant establishments or online are provided with an interest-free period of up to 51 days. But, this is not applicable on ATM cash withdrawals using the credit card. The interest will start to accrue from the day you withdraw.

2. Don’t carry forward dues to next cycle

Not paying the credit card dues in full on or by the due date means you are rolling over the credit. In doing so, you end up incurring high interest rates or finance charges. Generally, the finance charges are around 3.5 per cent per month and between 36 per cent and 42 per cent on annual basis.

In case you are making a partial payment for credit card dues and wants to roll over the balance, make sure to pay the rest of the amount as early as possible without waiting for the next due date. This will help in keeping interest charges lower.

3. Missing due date

You need to keep a reminder of the credit card due date. If the last date to pay gets missed, credit card penalty gets levied which could be as high as Rs 900, depending on the amount. The penalty varies as per the card issuer and amount of outstanding. In every credit card, one has to pay at least 5 per cent of the bill amount. It’s better to opt for Standing Instruction or auto-debit mandate with your bank so that credit card payments are made well in time.

4. No interest-free period on new purchases

Not paying the entire bill amount on time will not only end up in high-interest cost but will also make the user lose interest-free days on any new purchases. Typically, all credit cards give 45-51 days’ free credit period on cards before the due date arrives, however, if the entire bill amount of the previous cycle has not been paid, this advantage is lost.

5. Opting for moratorium

The RBI had asked banks not to ask borrowers for credit card dues till August 2020 to help borrowers tide over the financial crunch during the COVID-19 pandemic. Now, this move is certainly going to help those who are in financial stress, but opting for it can still be costly. The RBI moratorium scheme is not a waiver but only a deferment of the dues. After the moratorium ends, you will be required to pay interest on the unpaid dues anyhow.