A Reddit user recently shared their experience of facing heavy finance charges after missing a credit card payment by just ₹431. According to the post, the user's total credit card bill stood at ₹4,17,770.38 and they paid ₹4,17,339 before the due date. Despite the small shortfall, the bank subsequently levied finance charges of around ₹25,794. In addition, GST of about ₹4,643 was charged on the finance charges, taking the total additional amount to about ₹30,437.
A credit card grace period is the interest-free time between the end of your billing cycle and your payment due date. As reported by Mint, if you don't pay your bills by the due date, or even pay only the minimum amount due, the bank charges interest on the balance amount. This will keep adding up until you make the full payment. Fresh purchases made in the subsequent billing cycle may also lose the grace period and can start accruing interest immediately until the entire outstanding balance is cleared.
According to experts cited by Mint, finance charges can go up to 42% per annum for most credit cards. However, this can happen only if the credit card holder does not understand the concept of compounding interest. When there is an unpaid balance in your account, all new purchases become ineligible for the interest-free period, which means they will incur finance charges from the first day. This can cause the outstanding balance to grow rapidly, particularly when a cardholder continues making only the minimum payment over several billing cycles.
The Reddit post has drawn attention to the importance of checking the total amount due on a credit card statement and ensuring that the entire outstanding balance is paid within the due date. As reported by Mint, paying only the minimum amount due can help you avoid late payment charges, but the unpaid balance may continue to attract finance charges. Such situations can also lead to a debt trap if you use other credit cards to make payments for an old credit card bill and vice versa.
