Credit cards allow you to make purchases today and then later pay for them and allow you to generate credit cards without any difficulty. However, the convenience of paying can come at a cost over time.
If you have to pay off your balance for more than a few weeks, you can incur a charge in the form of a borrowing charge, raising the expense of getting a credit card. The longer it takes you to pay off your balance, the more finance charges you will pay.
Technically, a finance charge is any charge included in the borrowing money costs, such as accrued interest, and borrowing fees, such as transaction fees. However, in practice, a finance charge is usually synonymous with an “interest charge,” although it may, in some cases, include late fees or other costs.
For credit cards, the interest that has accrued over the money you owe during the particular payment period is your finance fee.
Your credit card financing charge depends on a couple of factors – specifically, your annual percentage rate, or APR, the amount of your debt, and how long the billing cycle took.
You can avoid financing charges on nearly all credit cards, but the timing and amount of your credit card payment are all about that.
Here are some tips to avoid finance charges-
1. Don’t Use Credit Cards Abroad
Foreign currency purchases using a credit card abroad are good, but they may be costly. If one uses a credit card elsewhere, conversion charges will apply, and an additional fee will be charged when used at an ATM.
Conversion charges will vary from 3 per cent to 5 per cent everywhere. Alternatively, when you’re travelling overseas, you should hold a Forex card for better pricing and to keep the overall cost at bay.
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2. Pay the Remaining Balance by Credit Card on the Due Date
Every month on any credit card issued by any issuer such as Visa or Mastercard, payment of only 5 percent of the outstanding balance of the credit card is compulsory. You may roll the balance over to the next month. This is something you can stop doing entirely because this is the quickest way to land in the debt trap.
When you do not even make a minimum of 5 per cent by the due date, you will be paid a late payment fee along with interest charges and VAT. Seek to make full payment on the due date, so interest rates are zero. To keep interest rates on credit cards at bay, payout the outstanding balance by the due date in full.
3. No Interest-free Period On New Acquisitions
Rolling to the next billing cycle over the outstanding balance will incur monthly interest at a rate of 3-4 per cent. If you continue to roll over and make new purchases every month at the same time, the interest portion may be ballooning, and you’ll soon fall into a debt trap. Credit card transactions usually have an interest-free duration, which can also go up to 45-plus days.
The unpaid balance needs to be zero to take advantage of the gain. And, if you carry forward a certain amount to the billing for next month, there is no interest-free duration on the new transactions. When the unpaid balance is not cleared, stop making new transactions on the card to keep the rate of interest lower.
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4. Switch On EMI
On your wallet, there could be some high-ticket transactions. If paying it off is a problem altogether, you can turn them into EMIs because they come at a lower interest rate than what they should have cost. The interest hit after conversion could be about 14-24 per cent lower than the one on the coin. EMI conversion facilities can be of two types.
“The first is the retailer EMIs that a retailer provides when you use your credit card to buy a specific product. Instead, your credit card issuer may give you an EMI option for such high-ticket transactions that you make with your credit card.
5. Earliest Deposit Currency Withdrawals
When you need to withdraw cash from ATMs using your credit card, make sure you deposit the money back as early as possible because these withdrawals do not come with an interest-free duration.
There may be a one-time fee plus interest rates that start from day one before the amount is repaid. Putting the money back early will help you from charging a higher interest rate.