Given the uncertainty of income and business in light of the COVID-19 pandemic, it has become important to re-look at every aspect of financial lives.
Given the uncertainty of income and business in light of the COVID-19 pandemic, it has become important to re-look at every aspect of financial lives. This includes credit card payments and usage during the lockdown.
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One needs to be very careful of mistakes with regard to the credit card, say experts.
Here are 6 credit card mistakes one should avoid:
Opting For Credit Card Moratorium
Avoid opting for a moratorium on credit card payments or defaulting on any existing credit card payments bills.
"While a moratorium may provide a temporary breather, the accumulated interest might lead into a debt trap. Credit card interest rates can go up to astronomical interest rates of 30-40 percent, so avoid piling on more debt," says Anuj Kacker, co-founder, MoneyTap.
Making Unnecessary Purchases From Credit Card
Zafar Imam, Lead, OPPO Kash asks credit card holders to avoid unnecessary spends from credit card.
"Instead use them in case of medical emergencies or unexpected financial crunch, such as one caused by a sudden job loss. Buying non-essentials or luxury items can wait," he added.
Withdrawing Cash From Credit Cards
Another big no-no is - withdrawing cash from credit card.
"Withdrawing cash from credit card can have hidden charges and it can rack up the final repayments to a very high percentage," explains Kacker.
Not Repaying Credit Card Dues
It’s significant to pay credit card dues at time. Users facing difficulty in repaying their credit card dues can consider availing a personal loan instead, if available during the lockdown.
“They can also convert their entire outstanding balance or a part of it into EMIs. These options come with tenures of up to 5 years and with interest rates much lower than the finance charges incurred on unpaid credit card dues. These options will enable comfortable repayment of credit card dues in smaller tranches in the form of EMIs without incurring the high finance charges," explained Sahil Arora, director and group head, investments, Paisabazaar.
Exceeding Credit utilisation Ratio
Other credit card mistakes that one must be aware of include exceeding the credit utilisation ratio beyond 30 percent limit.
"Card holders exceeding credit utilisation ratio beyond 30 percent are considered as credit hungry, and this can lead to credit bureaus reducing credit score by a few points on breaching this level. Such cardholders should request their card issuers to increase their credit limit, which will help in reducing the credit utilisation ratio," added Arora.
Not Utilizing Reward Points
Credit card reward points can be used for purchasing vouchers, merchandise, air tickets and adjusting credit card bills. As most credit card reward points come with expiry dates, card holders should keep a close eye on the expiry of rewards points and utilise its benefits.
First Published: IST