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6 reasons why you should avoid late credit card payments
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6 reasons why you should avoid late credit card payments

Credit cards like every other asset can be a boon if handled well. On the one hand, they increase your purchasing power. On the other, they have the potential to lead you into a debt spiral. You have to be cautious about your credit card payments.

Let’s understand some of the scenarios that often lead to delayed repayments.
  • Overspending and failing to make timely repayment due to insufficient funds.
  • Dependency on physical bills sometimes end up missing due dates due to postal delays.
  • Waiting until the last day to make the most of the interest-free period resulting in a missed payment.
  • Though a rare occurrence, but simply getting confusion about the billing date and the payment due date.

Missing a credit card payment is a bigger deal than you might think. Your credit card company won't show up at your door after you miss a payment, but they're definitely taking action behind the scenes. It could affect you for months, and even years, to come. Knowing the consequences of a late credit card payment should be enough to make you take extra effort to pay on time.

Let us look at some of the consequences of late payment of credit card dues.

1. Late fee

You will have to pay a late fee if you pay your bill after the due date. The late fee would be charged by the bank in your next credit card bill. In a recent move, the Reserve Bank of India (RBI) has directed banks to charge late fee only if the payment has been due for more than three days after the due date. However, it is better not to take chances when it comes to paying off your credit card dues.

2. Higher rate of interest

The interest rate on your outstanding bill will also increase if you don’t pay the minimum amount payable by the payment due date. This increased interest rate will be applicable on cash withdrawal or regular purchases also, if you continue to make purchases from the credit card after defaulting on the bill payment.

3. Withdrawal of interest-free credit period

Defaulting on your card payment can lead to withdrawal of interest-free credit period from your card. Interest-free credit period can be anywhere between 20-50 days. This interest-free credit period is a huge advantage of using a credit card as the bank is actually financing your purchase for that interest-free period. However, the bank will withdraw this feature if you do not make full payments on your due date.

4. Adverse effect on your credit score

Your credit score determines your credit worthiness and this score is often used by banks or other lenders to evaluate your loan or credit card applications. Payment history makes up a significant part of your credit score. So, late payments can have a significant effect on your score, affecting your ability to get new credit in the future. Your bank will report your defaults to credit information companies, which in turn will include them in your credit score. Therefore, a poor credit score can become one of the reasons for the rejection of your credit card or loan application. A poor credit score can also result in higher interest rates for loans being offered to you.

5. Decrease in credit limit

Frequent defaults in credit card bill payments will decrease your credit limit, which will restrict your spending capacity in the future.

6. Paying just the minimum amount due

If you are one of those, who believe that if you pay the minimum amount payable, no interest would be charged on your outstanding bill amount, you could be wrong. In reality, you will pay interest on the outstanding amount starting from the payment due date. The rate of interest cost can be as high as 45% annualized. So, it is always better to clear your entire dues by the payment due date.

It is always better to be safe than face the consequences of a late credit card payment. How do you go about it?

Stick to the due date. You can set a standing instruction with your bank to clear the outstanding amount on the billing date so that the amount gets automatically debited from your account on the given date.

You could also set an alarm or a reminder to get a notification before your due date.

Credit cards have many benefits. Among them is convenience, security, speed and hassle-free operations. Care should be taken not to abuse the instrument, so that the benefits can be enjoyed to the fullest.

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