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Things to remember when using your credit card
The New Year is upon you. Time to bring out your shopping list. Oh… I remember that beautiful purse in the fancy store across the road. Thought of gifting my brother a new laptop. Worse… My son was fighting for the latest play station.
Time to bring out the credit card.
The last minute trick:
Remember the money in the credit card is not yours .It is borrowed. It has to be repaid with very high interest. At the beginning of the month there are always purchases to make. The money in the credit card looks plenty.
Postpone your purchases to the end of the month (The last minute trick).How does this help?
Money is always in shortage at the end of the month .You will buy only what you truly need if you postpone your purchases to the end of the month. All fancy and unnecessary purchases can be avoided. Remember the fancy purse and the playstation.
The credit card charges you a high interest:
Remember : The interest rate can be as high as 2-3.5% a month which equals (25-40% a year).
In addition there could be a late payment fee. You have to pay the interest on the amount outstanding. Choose a credit card which has low interest rates and penalty fees and other charges.
You are not charged any interest if you make your payments within the billing cycle. (Generally 1 month) .You are given an additional 15-20 days (grace period) in case you miss this deadline.
Remember the billing cycle:
Your credit card has a billing cycle (usually on the first day of each month). The billing cycle is of a month. An additional 20 days called the grace period is given.
If you make the payment for the item (laptop) you purchased within the billing cycle and the grace period (30 days + 15-20 days) you are not charged any interest.
But do you really get 50 odd days to make the payments for the new smart phone or laptop you purchased with the credit card.
If you purchase a laptop of INR 30000 using your credit card on 15th May at a monthly interest of 3%…Do you have 50 days (or till June 30th to pay back the amount).
Your billing cycle is presented to you on June 1st .
So how is your daily interest rate calculated?
You have purchased the laptop on : 15th May
Your billing cycle is on : 1st June.
Your daily interest rate is:
= Outstanding amount * rate of interest (monthly) * number of days
= (INR 30000) * (0.03) * ((18/365) * 12) = INR 533.
If you miss the due date of 1st June (the end of your billing cycle) you are given an additional 15-20 days as a grace period.(say June 20th)
If you miss this deadline then you will be charged at interest of INR 533.There might also be a late payment fee in addition to this interest charge.
Remember: The interest is charged from the date of purchase of the laptop and not at the beginning of the month.
The credit card is not a simple piece of plastic. It has to be used judiciously otherwise it will lead you into a debt trap.
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