Now that you know about billing cycles and billing dates, payment due date, minimum amount due, total amount due and previous balance, let's understand how you must make your payments to ensure to to get into credit card debt. Credit cards have their pros and cons, which explains the good and bad that get reported about them.
Credit card is an unsecured loan, means that unlike a secured loan, which is advanced by a bank/financial institution against a security like property for instance, a credit card is offered without any security. Hence banks take necessary steps to ensure that only those meeting certain parameters are qualified to use their credit card.
One of the major things in a credit card statement is Minimum Amount Due (MAD), which is 5% of the Total Amount Due. This is the only detail you will find relatively well highlighted in your monthly account statement. This states that you must pay for the purchases done in that month so as to not attract a penalty for default on payment of card dues. But there are charges levied then also if you pay you Minimum Amount Due before the due date. Lets have a look on the IV possible scenarios
(I) If you pay don’t pay anything till the due date, then you are liable to pay the following charges:
• Late Payment Charges
• Default Charges
• Processing Fee
• Transaction fees
• Service Tax
• APR
(II) If you pay less than the Minimum Amount Due before the due date then also you need to pay the above-mentioned charges.
(III) If you pay more than or equal to Minimum Amount due but less than the total amount due then you will be categorized as a Revolver. And then you will be levied the following charges:
• APR from the date of the transaction and on the full amount of the transaction
• Processing Fee on the full amount of the transaction
• Service Tax
Till the time you don’t pay the total amount due on your card with all the charges levied you cannot get out of your credit card debt.
(IV) If you pay The Total Amount due and that too before the due date then you can always take the maximum benefit of your credit card!
It is recommend that you should pay the entire sum, i.e. Total Amount Due before the due date on your card. Buying on a credit card is okay till the time you pay your bills religiously. The moment you carry forward your payment to the next monthly cycle, you will have to pay interest on the unpaid amount along with taxes. Once you understand these scenarios, you will be able to spend and use your credit card judiciously.
Source : Economic Times