Credit Cards are now a financial tool for many Indians, offering convenience, rewards, and emergency funds when needed. However, the ease of spending also leads to a debt trap if not managed wisely. Understanding how interest rates work and employing smart financial strategies helps you control your debt when you apply for a Credit Card.
Understanding Credit Card interest rates
Interest rates on credit cards are higher in India than on other types of Loans. Unlike Loans, where interest is charged on the outstanding principal, Credit Card interest is compounded daily if you do not pay your full bill on time.
How Credit Card interest is calculated
Credit Card interest is applied to your outstanding balance when you do not pay your bill in full. It is important to note that the remaining balance accrues interest if you pay only the minimum amount due. Here’s how it works: If your statement balance is Rs. 50,000 and the minimum amount due is Rs. 2,500, paying just the minimum will leave Rs. 47,500 accumulating interest at 3% per month.
This means an additional Rs. 1,425 interest is added to your balance next month, making it harder to clear your debt.
Ways to minimise Credit Card debts
- Pay your bills in full and on time
The best way to avoid Credit Card interest is to pay the outstanding amount before the due date. This ensures you enjoy the interest-free period, usually between 20 to 50 days, depending on your billing cycle. Missing payments can also impact your CIBIL score, making it harder to get Loans in the future.
- Avoid the minimum payment trap
Paying the minimum amount owed keeps your account from becoming delinquent, but it is a financial trap that keeps you in debt for longer. Try to pay the full amount to avoid high interest.
- Convert large purchases into EMIs
Many banks offer EMI conversion options for high-value purchases. These come with lower interest rates compared to revolving credit. If you have a large balance, converting it into an EMI plan can ease your repayment burden.
- Prioritise high-interest debt first
If you have multiple Credit Cards, focus on paying off the one with the highest interest rate first while making minimum payments on the others. This avalanche method strategy reduces the total interest you pay overtime.
- Consider a Personal Loan for debt consolidation
If you are struggling with multiple Credit Card debts, consolidate them into a single lower-interest Loan. Since Personal Loan interest rates are much lower than Credit Card rates.
Conclusion
If you want a Credit Card, check out different options that suit your spending habits. Consider exploring various choices, including the Rupay Credit Card, which offers competitive benefits. By understanding interest rates and employing effective repayment strategies, you can manage your Credit Card smartly and maintain a healthy financial future.
