Couldn't pay your credit card bill? Learn how to avoid late fees

Credit Card Late Payment Tricks: Credit cards are a part of everyone's lifestyle today. Most people use them for every major purchase, but if you don't pay your bill on time and the due date passes, the bank starts charging late fees. 

Many people think that a delay of just 1-2 days won't make any difference. But this is where the pitfalls begin. Late payment isn't just a charge on a credit card; it also carries with it many other hidden pitfalls. In this article, learn how late fees are charged, what the bank's interest trap is, and smart ways to avoid it...

How are late fees charged on credit cards?

1. Late fees

If a bill isn't paid by the due date, banks immediately impose a late fee. Most banks charge between ₹500 and ₹1,500, depending on the outstanding balance. 

However, the RBI has simplified some rules regarding late fee charges to increase transparency. Banks will now provide clear information to customers before charging late fees, and any changes to fees will need to be disclosed a month in advance.

2. The entire outstanding amount goes towards interest.

This is considered the biggest setback for credit card users. If you're late, your entire balance is subject to annual interest of 36-49%. This means that a bill of ₹10,000 could incur 40% annual interest, which translates to a loss of approximately ₹11-₹12 per day.

3. Grace period ends

The interest-free period ends with your next purchase. Interest will now accrue on every purchase made with the card from that day. The Reserve Bank has also provided cardholders with a grace period of at least three days after payment, during which payments will not incur late fees.

4. Credit score down

Once reported late, your CIBIL score can drop by 50-100 points. This can impact your future loans, including home loans, car loans, and limit increases.

How much damage can a credit card late payment cause?

For example, if your bill is ₹15,000 and you don't pay it on time, you could incur a late fee of ₹1,000, finance charges of ₹450-₹600 per month, and GST. Thus, the total monthly loss could be ₹1,500-₹1,800. If you're late for 3-4 months, the loss could exceed ₹5,000.

What to do if you are unable to pay your credit card bill?

1. Pay the minimum payment immediately

This method isn't considered ideal, but it can save you a lot of charges. Paying the minimum payment won't incur late fees, but your interest will continue to accrue. Keep in mind that the full payment won't be deducted. The only benefit is that it will help prevent a drop in your CIBIL score.

2. Set Due Date Reminders

Set an auto-reminder in your Google Calendar, phone alarm, or bank app. For most people, late payments are simply a matter of forgetfulness. This can help you avoid significant charges and save money.

3. Activate auto-debit

Once you've set up auto-debit, your monthly payment will be automatically deducted. If you're worried about overdrafts, you can simply select the "Minimum Amount Due" auto-debit option.

4. Split bill payments i.e. the smart split method

If you can't pay your full amount, you can pay it in two parts: one half a few days in advance and the other half 5-7 days later. This will reduce late fees and lower interest rates.

5. Select EMI conversion

If your bill is high, you can convert it into EMI. This will reduce interest and avoid late payments.

6. Redeem reward points or cashback

Many cards have reward points worth 500-2000 rupees. Use them for bill payments. This can be very beneficial.

Disclaimer: The information provided in this article is for general financial education purposes only. It does not constitute financial, credit, or loan advice. Before making any decisions regarding credit card-related matters such as late payments, interest, charges, or EMI conversions, please consult your bank, card issuer, or financial advisor. 

Each bank's policy varies, and charges may vary depending on your card type, usage, and payment history. Therefore, it's important to review all the information before taking any action.