It is not surprising to know that credit cards are expensive. Yes, cashless transactions can in fact end in an empty wallet if you aren’t careful about how much you spend and keep a check on your bills by paying them back regularly. So, what makes them popular despite their exorbitant charges? Well, let us have a look at an example and understand this better:
For instance, in your current billing cycle say for the month of March is as follows,
the total amount due is given as Rs.5000,
the minimum amount due is Rs.150,
Considering you pay only your minimum amount due,
your current outstanding is: Rs.4850
Interest charged is 3% on outstanding; which is Rs.145.5
The total outstanding is: Rs. 4995.5 ~ Rs.5000
Let your new purchase in the next billing cycle (for the month of April) be worth Rs.2500
The minimum balance paid by you is Rs.200
Now, your outstanding is: 5000 + 2500 – 200 which is 7300
(adding previous month’s balance to the current bill)
Interest charged at 3% on outstanding; which is Rs.219
The Final Outstanding is Rs.7519.
Just think for a moment and see, you had already paid the sum of Rs.350 which is the minimum dues for both cycles. And apart from this you’ll have to pay Rs.7519. which amounts to a total of Rs.7766.
The more number of bills you leave unpaid, the more you will end up paying. Simply because 3% per month amounts to 36% per year! Now, doesn’t that sound a little too expensive? Moreover, the interest charged is on the total outstanding and not just on the current bill’s due amount, do you see how tiresome it can prove to be?
Do not ever fall into a treacherous debt trap, because that is precisely where you will end up the moment you default on your credit card.
Unless you believe you possess some amount of self discipline when it comes to using these plastic financial weapons, there is a good chance it will backfire right back at you. This sometimes leads to people settling their cards.
What does credit card settlement mean?
When the outstanding amount on your card exceeds way beyond your repaying capacity, the card issuer will quote a minimum settlement amount.
Once you settle your card, it means that the issuer will cancel all the outstanding on your card, this will end in your card being terminated.
Wait there’s more.
Settling your credit card can have one of the worst effects on your financial life. And that too on a permanent basis! Why you wonder?
You see, when your card is settled, your cibil score automatically gets lowered. Apart from that, from this kind of behaviour the bank understands that you are not very good at repaying the money you borrowed. Finally, ending in your loan application being rejected. yes, such is the extent of defaulting on your credit card.