6 Reasons to Avoid Late Credit Card Payments

Many credit card on computer laptop, Online shopping concept

As a result of the COVID-19 pandemic, 2020 saw an unprecedented loss of income for millions of Indians. The poor scrambled to make ends meet, and migrants literally walked back to their native villages as jobs disappeared. Migrant workers, who the affluent are used to seeing working on new building sites, weren’t the only ones who found themselves in dire straits. Many average and white-collar employees saw loss of employment. 

0Start-ups ended up shutting down, and there was a malaise in the overall economy. Companies had no choice but to walk the path of employee layoffs, or cut salaries to tide over losses. Manufacturing plants saw a universal shut down. Naturally, spending stopped. Since then, credit cardholders are in the multitude of defaulters. 

Banks started to contact them as soon as the situation improved in the last quarter of 2020. By December 2020, losses from credit card bill non-payment amounted to over INR 800 crore. In September 2019, defaulted payments were in the vicinity of just over INR 300 crore. With most people paying the minimum amount due in credit card bills, thereby maintaining accounts, outstanding amounts saw hefty accumulation.

 Credit cards offer users a line of credit for around a month (after the first purchase of the billing cycle) before a bill is created. 

Credit Card Payment

A holder must pay the bill that covers amounts spent in the billing cycle, in addition to charges and fees, by the due date. There is a “minimum amount due” that is approximately 5% of the total bill amount. 

This is the least that holders must pay to maintain the card. Many holders of credit cards who lack funds to pay bills make these credit card minimum due payments. They see this as a solution, but all it does is exacerbate the problem of untimely payments.

 Credit cards can be a boon, offering you ready cash. They also have the potential to draw you into a trap of debt. Here are 6 valid reasons to avoid late bill payment.

  1. Paying a late fee – A delay in your credit card payment sees you paying a late fee, charged to you in your subsequent bill. In a move to discourage defaulters, the Reserve Bank of India gives cardholders a “grace period” of three days after the due date. 
  2. Interest Charged – In case you do not pay your credit card bill amount, interest rates on your outstanding amount rise. After you default on the bill payment and continue to make purchases, this increase applies to your ATM cash withdrawals and new purchases. If you pay the minimum amount due in credit card bills, you will be charged the original interest rate applicable. 
  1. Interest-free credit period – You get an interest-free credit period that lasts for around a month, before a bill is produced. If you keep defaulting on credit card bills, you will have to forego this period, as you will be charged interest per day that your bill is outstanding. Credit cards have interest-free credit periods anywhere from 28 – 45 days approximately, a huge advantage of holding a credit card. An amount equal to 18% GST is also charged. 
  1. Negative credit profile – A defaulter is viewed as an individual having a negative credit score, affecting you adversely in case you need loans in the future. 
  1. Credit card minimum due payment – In case the “minimum amount due” is paid, you will still be charged interest at the rate your credit card mandates, or a higher rate if the issuer so decides, on the balance outstanding amount. 
  1. Credit limit decrease – A habit of defaulting on credit card payments is cause for card issuers to decrease cash limits. This restricts spending capacity for future purchases.

The Bajaj Finserv RBL Bank SuperCard is a fantastic credit card giving you the option of paying your credit card bills in EMIs. Interest rates are competitive at just 1.16% per month, and loans of up to 90 days are permitted. 

Conclusion

There are significant disadvantages in case you default on your credit card bill payment. Continuing to do so brands you a “defaulter”, and you get caught in a debt trap that is challenging to get out of. Overspending may lead to defaulting on credit card bills, and a lack of foresight about your financial strength can result in unwanted debt. 

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