In continuation to my previous article, through a series of articles, I would go deep into mechanism of charging the interest rate by the banks on Credit Card. The billing and payment dates in your card are very important and this also provides you with an opportunity to make the best use of them. It is very important to understand how the interest is levied by the banks in order to avoid issues at the later stage. A charge of Rs. 150 may not be big for you but this blog emphasizes on personal finance and considers the value of your hard earned money.

Continuing from my previous example The most important thing you should know about your Credit Card, let’s consider the example where Mr. Verma Again Made a Purchase of Rs.5000 on a 21st April, 2008. On May 24, 2008 Mr. Verma got the statement which was generated on 20th May,2008 asking him clear his dues before 10th June with minimum due amount of Rs. 250 (In case this looks bit confusing than you should read first Post on it The most important thing you should know about your Credit Card). The problem in front of Mr. Verma was that he was facing financial crunch and did not had sufficient money till 10th June, 2008. However he expected situation to improve in next few days. In situation like above, there is a strategy which Mr. Verma can use in order to avoid the interest.

No interest would be charged to Mr. Verma if he pays minimum amount due on payment due date and rest before the next statement date. To make it more clear- Mr. Verma paid Rs. 250 on 7th June before the payment due date of 10th June 2008. However he paid the rest of amount of Rs. 4750 on 17th June before the next statement date of 20th June 2008. Since all the outstanding was paid before the Statement date Mr. Verma new statement was interest free and without any delay charges. Hence the mechanism is
1) Pay the minimum due before the due date
2) Pay the rest of dues before the next statement date (the difference is normally 10 days between the two)
3) This would apply or may not apply if you have amount outstanding from the previous statements. In case there are outstanding than different mechanism comes into picture for sure in certain banks.

Do check with your bank if any interest would be charged on this delay. I know certain banks that don’t but since many new credit cards are in the market and hence it becomes important to check before you try to do so. This solution is for extreme situations but in case you have sufficient money than I would suggest not using this tactic at all but make payment in full before the due date. Make sure you pay 3 days before the billing and statement date because realization of amount (from cheque) by banks is covered in this period. I have used above method in my Credit Card and it worked well in the past. By using this method you get extra credit for few more days and can arrange money if you are not able to do so before payment due date.

It is better not to opt for debt if you don’t have the resources to pay back in time. Apart from urgent need there is no reason to make impulsive purchases on things without which you can live without. Debt trap start with small purchases and become severe from urgent ones. Through my series of posts I would make a sincere attempt to help you acquire sufficient knowledge about debt before you realize it in a painful manner.

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