High Interest Rates: Holiday Shoppers are Urged to Minimize their Credit Card Use

December 15, 2022

Owing to rising inflation, several economies have announced a hike in interest rate. For instance, in December 2022, the Reserve Bank of India hiked the repo rate by 35 basis points to 6.25%. This has resulted in an increased cost of borrowing, adding contemplation in the minds of borrowers.

In situations like this, it is recommended to limit the use of credit card and avoid paying higher rate of interest. As the holiday season approaches, credit cardholders can avoid paying higher interest rates by following these steps:

  • Pay outstanding amount on due date

Some credit card allows individuals to pay only 5% of the outstanding amount in a particular month. In simple terms, you can carry over the remaining balance to the upcoming month. Such credit behaviour should be completed avoided when the interest rate is on the rise. 

Following this facility could lead an individual towards a debt trap. Moreover, if you fail to pay the minimum 5%, the card issuers charge a late payment charge. 

To avoid this, try making complete payments on due dates and avoid any interest charges. 

  • Opt for a balance transfer

If you have accumulated a massive outstanding balance on your credit card during the holiday season, it might get difficult for you to pay the entire amount in full. In such a situation, you could opt for a balance transfer. Using the service, one can transfer the outstanding balance to another credit card with a lower interest rate. The primary objective of this method is to lower the interest payment each month.

However, to use a credit card this way requires some amount of processing fees. Card issuers will occasionally offer a zero-interest BT facility. Zero interest offers are usually for 3 to 12 months, and it is critical to repay the balance within that time frame.

However, if you consider opting for this facility, it is crucial to know that frequent balance transfers or outstanding card balance may lead to a lowered credit score.

  • Do not make new purchases without clearing due amount

If you take your outstanding credit for the upcoming month, you will have to pay more in interest. If you continue carrying an outstanding amount while making new purchases every month, the interest component will skyrocket, leaving you in a debt trap.

Typically, credit cards come with an interest-free period that can be more than 45 days. To avail this facility, your credit card’s outstanding amount should be zero. So, if you carry over the balance to the upcoming months, you will not be eligible to avail the interest-free facility on new purchases.

Thus, before making new purchases, consider clearing off the outstanding balance to keep interest cost on the lower side.

  • Convert payments to EMI

If you have made massive purchases on your card, you can consider converting your payments into EMIs after having a talk with the bank. This would result in a lower interest rate. In this regard, you may come across two types of EMI facilities. 

  • The first are merchant EMIs, which are offered by a merchant when you purchase a specific product with your credit card. 
  • Your credit card company may also provide you with an EMI option on certain large-ticket purchases made with your credit card. These are commonly referred to as EMIs on call.

You need to remember that on EMI payments, rewards do not accrue. Additionally, keep an eye on the additional charges associated with EMI conversion. Although most merchant EMIs do not have associated charges, on call EMIs do feature some charges.

To get more insight into this, consider checking the features offered by different credit card issuers before obtaining one. You may resort to platforms like Bajaj MARKETS for detailed research. This platform hosts various credit cards offered by leading banks of the country, viewing which will help you make informed decisions. 

  • Make quick cash withdrawal deposits

If you want to use a credit card to withdraw cash from an ATM, make sure to deposit the amount at the earliest. Note that ATM withdrawals on credit cards do not come with an interest-free period. You become eligible for interest charges the moment you take this route, in addition to some associated charges. Thus, be wary of this facility and take necessary steps to deposit the money as soon as possible.

  • Avoid making international transactions

You may use a credit card for foreign transactions, but note that such transactions will be expensive. The hiked interest rate will further add to your expenses. If you use a credit card abroad, you will have to pay conversion charges. Furthermore, ATM withdrawals too attract additional fees.

Keeping these pointers in mind will help one use a credit card in limitation during the holiday period as the interest rates go up.