Understand your credit card billing cycle and save yourself from penalties
Last week a well known Srinagar city businessman tried to create waves out of nothing. He owed some money to his bank on account of his credit card transactions. On ‘due date’ he paid his outstanding credit card bill, but less by 50 paisa. Even as he didn’t use his credit card during the succeeding month, previous outstanding of 50 paisa still remained unpaid.
So next month he received credit card bill from his bank showing outstanding amount of 50 paisa to be paid by 10th of the next month. As per the procedure, the bill showed ‘minimum amount due’, which is usually 5% of the amount outstanding against the cardholder. And three paisa was the minimum amount to be paid within the stipulated period, that is, 10th day of the month.
As per the statutory guidelines issued by the Reserve Bank of India, the credit card user is necessarily to be informed through SMS, email and bill in physical form about the amount outstanding to the cardholder. And there’s no accounting procedure in place which could have encouraged the bank to write off the meager outstanding of 50 paisa. Notably, under the credit card agreement between the bank and the customer, if the cardholder fails to pay at least ‘minimum amount due’ on his/her credit card bill, a late fee of Rs.100 is levied.
The businessman, who has headed premier business body asked: “Now if the bank is really serious to get this amount, please inform me where shall I get 3 paisa coin from?” Here he intentionally tries to play a foul, as a man of his stature knows that transactions in paisa are made in cashless mode through transfer entries. He could have squared the entry by asking his bank to square the outstanding credit card payment by debiting the amount from his bank account. It also looked absurd when he called routine credit card bill as ‘notice’. I fail to understand what made this reputed businessman to play foul with the reputation of his bank through newspaper headline instead of clearing this petty outstanding? Is it lack of financial knowledge or just to get into the news in this most unethical way?
Let me caution the businessman. If he has still not paid 50 paisa or ‘minimum amount’ of 3 paisa on due date, he would be charged late fee of Rs.100. So it should not surprise him to get next bill showing outstanding amount of Rs.100.50.
Anyways, this 3 paisa story has a lesson in itself. It simply shows very poor level of financial education even in our most literate class. So understanding your credit card billing cycle is a must. This billing cycle has three important things – Billing Date, Due Date and the Minimum Amount Due.
Billing date is when your credit card bill will be generated in each month. Credit card due date is the date by which the credit card outstanding should be paid off in order to avoid late payment charges and interest cost. While keeping track of the billing date and the due date, you can use bank’s money without paying any interest. Here it is advisable to use the credit card where the billing date has just gone. Then there’s ‘minimum payment’ listed on your billing statement. Typically, it is calculated as a percentage of your credit card balance. If you pay less than the minimum or you make the payment after the ‘due date’, your payment is considered late and you will be charged a late fee. Paying the minimum balance is just going to make sure that you are not charged any late fee. Even if you pay off minimum balance, still you pay the interest on the rest of the outstanding balance. Remember, you start paying interest on your balance outstanding even if you have 50 paisa in outstanding.
(The views are of the author & not the institution he works for)