Avoiding Credit Card Debt: Use Grace Period Offered by Your Provider
A credit card is a fantastic financial tool if used wisely. But managing your credit statements, bills, payment cycles, debts, interest rates and more can be a daunting task! And the same reason could push you into a debt trap even before you realize it! Not to mention, it can lead to a dip in your credit score as well!
Credit card debts can pile up if you do not make timely payments, continue to make high-end purchases outside your budget, and splurge unnecessarily. However, many underestimate how compounding interest can become a major reason for your multiplying credit card debt.
While it can be cumbersome to manage all your financial obligations, credit card debt, with proper management, can be avoided. Thankfully, there is a solution we can use!
The foremost thing you can do to manage your credit debt is to utilize your grace period! But what is a grace period? How can it help you manage your debt and interest rates? Are you eligible for a grace period? And how long is this period?
Well, don't worry! We at IndiaLends have answers to all your questions!
Read further to know what a grace period is and how you can avoid a debt trap using the same.
What is a grace period?
Banks/credit card companies sometimes offer a break on interest charges for a billing cycle. Known as the ‘grace period’, this break is offered as a concession to you if you pay your bills on time.
But here are a few things to note:
1. In case you are carrying forward payments from previous cycles, you may not be eligible for the grace period
2. In case you withdraw cash using your credit card, interest charges may apply
The grace period is the time between the conclusion of your billing cycle and the payment deadline. Now, this period is interest rate free, also called the interest-free period. The grace period can range anywhere from 20-60 days, depending on the credit card issuer's terms and conditions. However, be aware that not all credit cards offer grace periods. If your credit card does not have a grace period policy, it may be time to switch to a different issuer.
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Let's decode this with a simple example. Assume Mr. X is a credit card holder. On the first day of his billing cycle, he makes a purchase of Rs. 10,000. Now, on the due date, Mr. X clears his entire outstanding balance. So, now Mr. X would not be charged any interest rate for this spend in the next month/ billing cycle.
However, let us assume that Mr. X only cleared Rs. 9,000 of his dues. Then, interest charges would start accumulating, on the remaining Rs. 1,000, and that too, from the beginning of the cycle.
Remember, the grace period is not a guarantee! If you miss payment cycles continuously, it may become extremely difficult for you to obtain a grace period. You may then need to continuously pay your credit balance for months together to regain a grace period.
How to make the best use of your grace period to avoid credit card debt?
With a credit line available in just a few clicks, falling into credit card debt can be very easy. Regardless of how minimal your credit bills, debts, and cash withdrawals are, interest charges can make them spiral out of your control. To avoid such financial blunders, it is important to not only read your credit statements, terms, and conditions carefully but also to devise the right plan to manage them.
Using grace periods in such scenarios can be very beneficial. However, keep in mind the below points to make the best use of your grace period and avoid a debt trap.
1. Read your terms and conditions carefully
Going through tonnes of paperwork that comes along with a credit card can initially seem harrowing. Now, this can be unwise. Not being aware of the terms and conditions that come along with a credit card can prove to be very costly in the future.
Many important factors like grace periods, interest rates, late fees, and other critical details could be buried right there under your terms and conditions. For example, certain cards may require you to spend a certain amount to avail of a grace period. If you have no idea about such guidelines, you could be in for a surprise later.
Without reading and understanding these terms and conditions, and simply signing the paperwork, you may be consenting to pay atrocious rates and charges you disagree with. Not just that, you may not be able to negotiate or back out later. In every sense, not being aware of your terms and conditions is an invitation to a financial disaster.
2. Pay your bills and dues on time
One of the basic prerequisites for availing of a grace period is the timely payment of dues. This is a win-win situation in every way. Firstly, you do not accumulate interest and remain in control of your finances by paying your bills on time. Secondly, this helps obtain further grace periods.
Remember that partial payment or having overdue balances may not help obtain grace periods. Rather, your interest may start compounding, landing you in a debt you never drew!
The best way to avoid credit card debt and interest accumulation in such a manner is to use your grace period wisely and pay your bills promptly.
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3. Be mindful of payment cycles and big purchases
Individuals often underestimate how smart management of payment cycles can be a real game-changer when using credit cards.
For example, assume your credit statement is generated on the 15th of every month, with a due date on the 11th of the next month. Now suppose you purchased an expensive piece of furniture on June 16th, right after your statement was generated. Now, this will not reflect on your bill on July 11th and will be due the next month after this, that is, on August 15th. That's nearly two interest-free months!
Do you see how even heavy expenditures, when managed right with payment cycles, can be a great boon!
4. Manage expenses and create a budget
The basics of financial planning kick in even when using a credit card. Complicating bills, and paperwork and having them all over the place can push you into a debt trap faster than you can anticipate. And hence it becomes paramount that you have a budget in place and manage your expenses in accordance.
One of the best ways to do this is by creating a budget that addresses and maps your long-term and short-term financial credit expenses and plans on how and when you would pay them back. You can also use grace periods to dodge interest rates and track every billing cycle diligently. Make a habit of reading your credit statements in detail and cutting unnecessary expenditures and cash withdrawals.
The takeaway
Credit cards is one of the most convenient ways to get credit in today's fast-moving world. However, if you miss payments, you need not fret! Many cards offer something known as the grace period. You can use the grace period to cover your bills and avoid interest charges and debt accumulation.
So, read your credit statements in detail and make sure you use your grace period wisely to positively clear your dues!
