LoanRaja Blog- Personal Finance Guide

Credit cards are one of the few products which have dedicated users and aggressive critics. While those who use it efficiently swear by its comfort, those who have been put to discomfort, don’t miss an opportunity to blame the plastic money for their financial problems. Are credit cards then a product which can land you in a mess eventually? The answer, obviously is NO provided you understand its nitty- gritty. In fact, just understand the fine print associated with your credit card and chances are that you will have lesser opportunity to make it a scapegoat for your financial troubles.

There are two important dates for every credit card user as the product’s entire dynamics revolves around these two dates. One is the statement date and the other is the payment date. As a card user, if you manage to remember the statement date, it will do a lot of good as you can effectively use your credit card. As the name states, this is the date on which the card company generates a statement of all your transactions. Hence, the credit card bill amount will be the sum of all transactions made from previous statement date to the latest statement date. Now, why should you remember the statement date?

Let us assume that the statement date of your credit card is 10th of every month and payment date is 30th of the same month. If you make a purchase on your credit card on 9th or 10th, chances are that you will be required to make the payment during the same month (as per payment date). That would mean you can enjoy a free credit period of only a maximum of 20 days. Instead, if you had made the purchase on 11th of the month, your purchase transaction would be after the statement date of the same month and hence would get reflected in the statement of the following month. Since the payment date is on 30th, you would effectively enjoy a free credit period of 50 days! Now, such smart shopping can be done at least for big ticket purchases though you can’t really plan your restaurant or movie ticket bills. However, a good memory of statement date surely will come in handy as you can make a better use of your card.

Even if you are unable to remember the remember statement date, make sure to remember the payment date as missing this date with respect to this date can land you in trouble. Credit card companies are pretty severe on defaults and can slap you with hefty charges. As you would have noticed, the interest rate on credit card outstanding amount is pretty high and in recent times, has gone up to as high as 50%. In addition, card companies also charge late payment fees if the statement amount is not paid on time. For those who struggle to remember the due (payment) date, ECS (electronic clearing service) is the best option. Generally, credit card companies will debit the bank account on the payment date. If the account does not have the required amount, the minimum balance would be debited from the savings account.

And finally, make it a habit to keep your credit card spends according to your ability to repay. Sure, credit card allows you the flexibility of paying only 5% of the statement amount but the flexibility has a huge price as the card company will slap an interest on the entire amount even if you pay only a portion. This interest would be as high as over 4%on a monthly basis and if you take into account other charges, the final penalty will be over 50% per annum. All this of course, can be avoided if you get into the habit of clearing the entire statement amount by the payment date. That will also help you realise that credit card is a product which allows you to enjoy free credit for a certain period.