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It is never a good idea to spend carelessly using your credit card as it is one of the easiest ways of landing in a debt trap. Getting out of this trap can be time-consuming and expensive. Says Gaurav Gaur, CEO and Founder, mudrahome.com Sometimes the interest rates can range between 36-48 percent on the outstanding balance of a credit card (after rolling-over).
Here are six ways to lower the interest burden on your credit card –
On the credit card, issued by issuer like Visa or MasterCard, it is mandatory every month to pay only 5 per cent of the outstanding amount card amount. The balance can be rolled over to the next month. But it is best to avoid the roller over payment as it will only increase your debt burden. If you do not even make the minimum amount of 5 percent by the due date, a late payment fee is charged along with interest charges and taxes.
What should one do:
Try to make the full payment on or before the due date so that interest cost is zero.
Rolling over the outstanding balance to the next billing cycle will incur more interest to the outstanding amount. If you simultaneously keep purchasing in the next month too, the interest portion will balloon and you would soon fall into a debt trap.
The interest-free period on purchases on credit card, can be up to 45-plus days or more, but to avail this benefit, the outstanding amount has to be zero. But if you roll over certain amount from the previous month over to the next month’s billing, then there is no interest-free period on the new purchases.
What should one do:
Till your outstanding amount is cleared you should avoid making fresh purchases with the card to keep the interest cost lower.
At times you can be hard-pressed for funds, and unable to pay the bill amount in full. Revolving credit to the next month incurs an extra interest charge of about 3 to 4 percent per month. Balance transfer is the process of transferring the debt from one credit card to another to avail incurring of lower interest rate.
What should one do:
Under such a circumstance one may go for ‘balance transfer’ (BT) facility. This is possible only if one holds more than one credit card. Using the facility, one may transfer the outstanding amount to another credit card at a reduced interest rate of 1% – 1.77% per month. There will, however, be processing charges which is generally 1 percent of the BT amount.
Additional Reading: Tired of payday loans and Credit card
Sometimes there can be high amount purchases on your card. If paying it off entirely at one time is a concern, they can be converted into EMIs as they come at a comparatively lower interest rate. After conversion, the interest hit could be about 14-24 per cent lower than the one on the card.
What should one do:
There can be two types of EMI conversion. The first is the merchant offering the EMI’s when you buy a particular product using your credit card. Secondly your credit card issuer may offer you an EMI option on purchases you have made using your credit card. These are popularly known as EMIs on call.
Cash withdrawal from ATMs works very differently in a debit card and a credit card. There are no interest charged on Cash withdrawn from debit cards but it’s not the case with credit cards, where interest starts accruing from the moment you withdraw cash. The interest is charged at 2.50%-3.50% per month, plus a transaction fee of 2.50%-3.50% of the cash amount withdrawn.
What should one do:
Depositing the amount as early as possible to avoid paying a higher rate of interest.
Using a credit card abroad for foreign currency transactions may be expensive. There will be high conversion charges and additional fee is levied if one uses for ATM’s. The conversion charges ranges from 3% – 5%.
What should one do-
Carry a FOREX card instead to avoid these extra expenses.
