Like every other line of credit/loan, credit card also has its fair share of pros and cons. On the one hand, it gives an individual the freedom to purchase without worrying about bank balance. However, failure to make timely payments of credit card dues can lead a person into a downward spiral of impending debt.
There can be situations where the idea to delay credit card payment might seem well-suited, especially if there is a financial crisis. However, missing credit payments can bring, in addition to late payment penalties, ramifications severe enough to leave a long-lasting effect on the financial status. Given below are reasons why you should make every effort to avoid late credit card payments.
One of the reasons why no one should avoid late credit card payments is the stiff late fees charged by the banks and credit card companies. As per the RBI rules, the late fee is charged when a credit cardholder fails to clear off dues even after three days past the due date. The late fee is then added to the next cycle’s bill and can cost the cardholder a pretty penny.
If the payment for a credit card is due for more than 60 days, a penalty interest rate is usually levied by the credit card companies. Many credit card companies set this penalty rate as high as 30% to be charged on the outstanding bill amount. The increased interest is also charged on any new purchases or cash withdrawals – even after the credit card bill has been paid on time for six consecutive months.
If a customer pays just the minimum due or misses a payment, the outstanding balance gets carried forward. Once the rollover facility is used, the interest-free period lapses. Interest will be charged on the outstanding balance as well as subsequent purchases. The interest-free period is reinstated only once the entire bill is cleared in full.
Credit card companies will leave no stone unturned to collect the dues once an account goes in collections for several months. They might also demand additional charges which, unfortunately, are not illegal.
Not only credit card companies will repeatedly pursue the defaulter, but if a customer fails to pay despite companies’ constraints, the collection agency can mark the credit account on the credit report as a defaulting one.
Every bank and financial institutions checks the credit score of an individual asking for a loan or applying for a credit card. The credit score determines a person’s worthiness as a borrower, i.e., someone who regularly clears monthly dues.
A credit score calculation depends no less than 35% on whether the credit dues are paid on time. A consistent credit bill payment habit, along with the practice of paying off other dues, significantly boosts the credit score. Hence, if the payment history is not stable, it will directly affect the credit score since banks include these defaults in the credit information. As a result, chances of loan or credit card application getting rejected are always higher and so is the likelihood of getting a loan at an increased interest rate.
Even if the card is closed, you are still liable to pay the outstanding with interest. It's better to look at options of EMI or a personal loan to clear it off and pay a fixed rate of interest. Leaving the payment pending could result in the interest building up to more than the principal.
Credit card late fees can, however, be avoided if one follows the ways mentioned below.
Most banks offer auto-debit facility which automatically deducts money from the cardholder’s account on a specific date. Credit cardholders can sign up for this autopay facility which will reduce the chance of missing a payment due date. The only thing that one has to make sure is to keep sufficient funds in the bank account for the auto-debit to happen. This can be done by keeping a tab on the account balance on a regular basis.
One more way to avoid missing credit due date is to set calendar reminders and online alerts for at least four to five days before the due date. These alerts and reminders will notify the cardholders promptly and help them avoid late payment and all the hassles associated with it.
Depending on the method of payment, its important to consider the processing time. Cheques may take 2-5 working days, while online payments may take a few hours up to a day for the payment to be processed. If one is paying cash at the bank branch, a fee is usually charged for this service, but the payment will reflect faster. Different payment modes have different processing times for the payment to reflect in the credit card account. Therefore, it’s important to make the payment in advance to avoid missing the due date.
If however the credit cardholder still misses the due date, he/she should immediately call the card issuing company and work out some solution to avoid late payment penalties. If it is the first time that the person has missed a payment due date, he/she can opt for any of the aforementioned ways to ensure there would be no repeating of it in the future.
It’s important to pay at least the minimum due by the payment due date. This will ensure that no late payment fees are charged. The customer can also avoid being charged a higher interest rate.