December 12, 2024
Why do credit card bills often seem like a maze? It’s a thought that many will have likely had. Let’s unpack the top blunders people stumble into when settling their credit card bills. Better yet, we’ll show you how to sidestep these financial pitfalls like a pro.
Paying only the Minimum Amount Due
This is one of the most frequent mistakes credit card users make. By paying just the minimum amount due, you avoid late fees but you are still accruing interest on the remaining balance. Over time, this can lead to a cycle of debt as the outstanding balance carries forward with high interest rates. For example, if you have an outstanding balance of ₹50,000 and pay only the minimum (say ₹5,000), you’ll be charged interest on the remaining ₹45,000 for the next billing cycle.
Solution: Always aim to pay off your total outstanding balance or as much as you can to reduce interest charges and avoid debt accumulation.
Missing the Payment Due Date
A missed payment attracts late fees and increases you interest rates. Hence, it’s more expensive to manage credit card debt. Missing payments also affects your credit score and makes it difficult for you to access other financial products like loans or mortgages. For example missing one due date on a credit card bill of ₹30,000 could result in late payment fees of around ₹1,000 to ₹1,500 and increase the interest rate by up to 2% per month.
Solution: Set up reminders through your bank’s app or credit card bill payment platform.
Ignoring the Statement and Transaction History
Many people skip reviewing their credit card statements because they assume everything is fine. This is a risky habit, as it means you might miss fraudulent charges or errors made by the bank. Over time, these unaddressed inconsistencies can cost you money and may even result in an unplanned surge in debt.
Solution: Make it a point to review your credit card statement every month. Check for unfamiliar transactions, check that all payments are correctly credited, and keep track of your spending.
Utilizing More than 30% of Your Credit Limit
Credit utilization ratio, which is the percentage of your credit limit that you’re using, plays a critical role in determining your credit score. A high utilization ratio (anything over 30%) signals to lenders that you’re relying heavily on credit, which can negatively impact your score. For example, if your credit limit is ₹1,00,000 and you consistently use ₹60,000 or more, it could be damaging your score.
Solution: Keep your credit utilization below 30%. If you frequently use more, consider paying off your balance multiple times a month or requesting a credit limit increase.
Getting a handle on these credit card slip-ups is about making your money work for you. Think about it – when you pay on time, take a good look at your statements, and keep an eye on how much credit you’re using – you’re in control! Your credit becomes a helpful tool instead of a source of worry.
