Credit Cards can be an extremely helpful tool to manage your finances, as banks finance your purchases for free for a significant amount of time. When you make a purchase through your credit card, your credit card issuer pays on behalf of you. You need to repay this amount when the credit card bill, for the time period when you made the purchase, is due. Credit card users use this interest-free period smartly to maximize benefits. Here's how -
Opt for big-ticket purchase at the start of the billing cycle:
The time period between the credit card transactions and due date is known as interest-free period. Credit card swipes do not attract interest during this period as long as the outstanding dues are repaid on or before due date. Hence, you must plan your big ticket expenses in such a way that you avail maximum interest free period.
Spread your purchases among multiple credit cards:
If you have two to three credit cards with distinct due dates spread across a month, you must use the cards in a way that all transactions take place in the starting of their respective billing cycle.
For instance, consider you have 2 credit cards ‘Card X’ and ‘Card Y’ with billing dates 1st and 16th of every month respectively. For spends occurring between 1st and 16th use ‘Card X’ and for the purchases between 17th and 31st use ‘Card Y’. This way, you are likely to avail maximum possible interest-free period for all spends. Also, remember to keep thorough track of your multiple credit card bill dates and due date to avoid late payment fees and finance charges.
Avoid cash transactions:
Interest-free period is not applicable on cash transaction via credit card. Cash advance fees of up to 3.5% on the amount withdrawn or Rs.500 whichever is higher along with finance charges of up to 47% pa is charged right from the first day of the cash withdrawal from the ATM till the date you settle the outstanding dues.
Always pay your outstanding bill in full:
You must know that you can enjoy the interest-free period on your purchases only if you have paid off your previous months’ credit card outstanding balance in full by due date. If you have not, then the interest will continue accumulating on your previous outstanding balance along with the new buys you make in the present billing cycle. Hence, if you do not want to pay a heavy interest and late payment fee on your credit card, you must pay your credit card bill in full by the due date.
You must know that your credit card can be a cost-free source of funding for a time period, if you are a disciplined and responsible borrower with a good understanding of the interest-free period.
-By Sahil Arora – Business Head, Payment Products – Paisabazaar.com
