Choose this alternative only if you are willing to pay a higher price. Additionally, make sure to refrain from making it a practice to pay for everything with EMIs.
Credit cards have become a convenient mode of payment for those who go through a cash crunch. Credit cards help to make purchases and other payments when you are low on cash in hand. The credit cards also increase your purchasing power as you generally get 30-day in hand to clear the credit card bills. However, often many credit card users fail to make payment for the credit card bills before the due date. This leads to higher interest rates on the total due amount as well as late payment fees. Even if you pay the minimum amount to avoid late fees, you still end up paying interest on the unpaid amount.
So, experts advise to clear all your credit card dues at one go before the due date as the interest rates could be even more than 36% per annum for most of the credit cards. On the other hand, if you are not in a position to clear the entire credit card bill amount in a single payment there is another option of converting the entire amount or the big purchases into equated monthly installments (EMIs).
Many credit card issuers offer the option of converting purchases more than Rs 2,500 or Rs 5,000 to convert into EMIs. You can even convert the entire pending amount into EMIs, but for that you should contact your card issuer.
Converting the unpaid amount into EMIs reduces the financial burden and you can pay the amount in small amounts every month over a specified duration. Once you choose the EMI method, the due amount gets split into smaller EMIs and the cardholder can pay the remaining amount as per their choice. Before opting for EMIs you should understand the risks associated with it.
The EMI option comes at a higher interest rate and it could exceed your monthly estimates of repayment. Choose this alternative only if you are willing to pay small monthly installments at a higher interest rate. At the same time, calculate the durations and how much EMI amount you can afford every month. You can then decide the tenure of EMIs, accordingly.
Experts suggest that card holders should avoid the habit of frequently using credit cards and going for purchases with EMIs. Though many merchants and card issuers tie up for offering ‘No Cost EMIs’, you should consider how the EMI amount will affect your monthly budget.
No Cost EMIs are those where the card issuer does not charge any interest rate for a specified period on purchases from partner merchants. Depending on the merchant and the credit card issuer, the EMI tenure in such cases could be from 3 months to 12 months. Though, No Cost EMIs may also come with a processing fee or charge. So, before opting for such offers, go through the terms and conditions as well as any hidden charges thoroughly.
Utilisation of credit card amount is directly linked to your credit score. Higher the approved credit limit you use lower will be your credit score. According to experts, one should only use up to 30% percent of the credit card limit and lower the utilization ratio, higher will be your credit score.
During a financial emergency you may not be able to adhere to this credit utilisation rule, but in that case don’t fail to pay the full amount before the due date.
Credit cards are quite convenient to meet different monetary needs, but for a healthy financial profile you should use credit cards cautiously or only in unavoidable situations.
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