This is exactly the reason why your credit card company / bank will be happier if you keep paying the bare minimum due on your account or keep revolving your credit. Why? Because in spite of paying Rs 55,238 at the end of 12 months you will still have an outstanding to pay of Rs 83,242 (see the table below). This story - if you let it continue by paying just the minimum amount due - at the end of 12 th month, will make you hold your head in disbelief. So for the next month your total outstanding due will be Rs 98,483 (95,000 + interest and service tax of Rs 3,483). But, dear friend, there is interest to be paid to the company who has financed your purchases in the first place because there are no free lunches. His minimum amount due on these purchases is 5 percent, that is Rs 5,000, and he revolves the balance (Rs 95,000) at an interest rate of 3.1 percent monthly (or, have a heart, 41.79 percent per annum including service tax).Īs the table below shows in the very first month you pay Rs 5,000 on your total dues of Rs 1,00,000 leading you to believe that your total outstanding for the next month is just Rs 95,000. As your balance gets reduced, your credit limit increases by that amount and is available for use again.Īssume a scenario, where customer X has made purchases worth Rs 1,00,000 during the festive season. It is required that each month you pay the minimum amount which also includes the interest charges. Revolving credit means once you get a credit limit you can use it - that is, buy goods or services using your credit card - as long as you stay within the given credit limit. Let's have a better understanding of the same. Revolving and minimum payment are the key terms to be learnt. If you are not aware of this or are confused by credit card jargon, don't worry. Assuming that paying minimum of your outstanding amount is a good option is like digging your own grave. Soon you may find yourself reeling under a debt trap. However, it may not save you from finding a concrete solution for paying your credit card debt. In difficult times when you are short of means to pay for your credit card bills, paying minimum gives you a breather. This is what lures most credit card users into a debt trap which many find difficult to get out of. The street that comes alive during RamzanĬredit cards not only let you buy things on credit - you have 52 days of free credit if you use them smartly - but also allow you to pay a bare minimum - 5 percent - of your outstanding due. 'With entrepreneurship you can't afford a big ego' Why worry when plastic can do it for you? Aren't credit cards made for such situations, you think. Even when we don't have enough cash to pay for our purchases. The festive season has begun and most of us are planning to splurge.
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