The first step is to make sure that the credit card bill is paid within the due date. It is mandatory to pay five per cent of the bill amount. But if you pay only this amount, you will go into debt. The free loan period is up to 50 days when purchasing goods using credit cards. Failure to pay by the due date will result in 2.5-3.5 per cent monthly interest and late fee will be charged if the minimum amount is not paid.
Free credit will not be available if you use the credit card again without paying the full bill amount. Interest will be charged on each new purchase with a credit card. In order to get free credit, you need to pay the bill in advance within the free loan period.
If you are not able to pay the bill on time, you can use the Balance Transfer method. People with more than one credit card can use this method.
Balance transfer helps to reduce the liability on interest items. Balance transfer is the transfer of loan arrears from a high interest rate bank to a low interest rate bank. Under this scheme, the loan arrears of one bank’s credit card are transferred to another bank’s credit card. Debt cannot be transferred from one card of a bank to another.
There are many conditions for balance transfer. Balance transfer will not be allowed if the arrears on any card are ‘excessive’. Failure to repay at least 5% of the total amount on the credit card bill each month will result in arrears. Balance transfer will not be allowed even if the credit limit on the card is exceeded. Some banks only allow balance transfers six months after the card is issued.
The average interest rate on a credit card loan is two to three and a half per cent per month, while in the balance transfer scheme it is zero to one and a half per cent. But this interest rate is only for a short period of time (usually two to six months). If the arrears are paid within this period, a low interest rate will suffice.
Another way to reduce interest is to repay the transferred arrears as EMIs within a specified period. When paid as an EMI, the interest can range from 12 per cent to 24 per cent. At the same time, credit card interest rates usually go above 30 percent. If the EMI or the lump sum payment is not completed within the stipulated period, you will have to pay a higher interest rate again.
If you are withdrawing money from an ATM using a credit card, be sure to repay it as soon as possible. Free credit period is not available for cash withdrawals through ATMs.
If credit cards are used for foreign currency transactions abroad, there will be a higher charge. There is a charge of three per cent to five per cent for changing currency.
