- 1 Pay the Outstanding Amount on Your Card
- 2 should you pay credit card before due date
- 3 Why Paying Credit Card ‘Minimum Payment Due’ Is a Bad Idea
- 4 Advantages of Paying Credit Cards Before the Due Date
- 5 What Happens If You Can’t Pay For Your Credit Card
Pay the Outstanding Amount on Your Card
Credit card is an unsecured loan, means that unlike a secured loan, which is advanced by a bank/financial institution against a security like property for instance, a credit card is offered without any security. Hence banks take necessary steps to ensure that only those meeting certain parameters are qualified to use their credit card.
One of the major things in a credit card statement is Minimum Amount Due (MAD), which is 5% of the Total Amount Due. This is the only detail you will find relatively well highlighted in your monthly account statement. This states that you must pay for the purchases done in that month so as to not attract a penalty for default on payment of card dues. But there are charges levied then also if you pay you Minimum Amount Due before the due date. Lets have a look on the IV possible scenarios
(I) If you pay don’t pay anything till the due date, then you are liable to pay the following charges:
(II) If you pay less than the Minimum Amount Due before the due date then also you need to pay the above-mentioned charges.
(III) If you pay more than or equal to Minimum Amount due but less than the total amount due then you will be categorized as a Revolver. And then you will be levied the following charges:
• APR from the date of the transaction and on the full amount of the transaction
• Processing Fee on the full amount of the transaction
Till the time you don’t pay the total amount due on your card with all the charges levied you cannot get out of your credit card debt.
(IV) If you pay The Total Amount due and that too before the due date then you can always take the maximum benefit of your credit card!
should you pay credit card before due date
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Why Paying Credit Card ‘Minimum Payment Due’ Is a Bad Idea
September 22, 2015
You just received your credit card statement. Your cash flows for the month are already stretched. You realize that you won’t be able to make full payment towards your credit card dues. You are aware that the interest on credit card debt (or unpaid amount) is extremely high. You stumble upon an item Minimum Amount Due in your credit card statement? It is a small fraction of the total outstanding amount. You are wondering what Minimum Amount Due (MAD) means? Does it mean you will not be charged any interest if you pay the Minimum Amount Due? What if you do not even pay the Minimum Amount Due? Let’s find out everything you need to know about Minimum Amount Due.
How Does Paying Minimum Amount Due Help?
Minimum Amount Due is the minimum amount that you need to pay to the bank/credit card company by the due date to keep your account regular and avoid payment of any late payment fees.
Payment of minimum amount due ensures that you get away with paying only the interest. There will be no late payment or other finance charges applicable. Additionally, if you keep the account regular by paying MAD by the due date, the bank will not report your account as irregular to the credit bureaus. If your credit card account is reported irregular, your credit history/score will be adversely affected. This can be a problem if you are planning to take a loan in the near future.
By paying the minimum amount due, you cannot avoid interest on the unpaid amount.
How Is Minimum Amount Due Calculated?
Minimum Amount Due is typically 5% of the balance outstanding on the statement date. If you have opted for EMI balance transfer or purchase on EMI, that amount will also be added to your Minimum Amount Due. Any unpaid Minimum Amount from previous statement will be added to your current minimum amount due to arrive at total Minimum Amount due.
For the rest of this post, let’s assume the following:
- Credit card is generated on 5th of every month
- The payment has to be made by 26th of every month
- Interest will charged at 3% per month
- Late payment fees of Rs 500
Let’s try to understand the calculation with the help of an example.
Advantages of Paying Credit Cards Before the Due Date
Advantages of Paying Credit Cards Before the Due Date – It is likely you have found that the way spending in excess of the minimum amount owing upon cards month after month can save you income. May very well not learn you can also understand savings simply by spending ones plastic card payment first month after month. Engaging in the habit regarding spending ones plastic card payment prior to the due date, or even better yet, proceeding on the web in addition to spending before hand, supplies many advantages for conserving in addition to settling credit card debt.
Paying ones plastic card payment prior to the due date enables you to lower your expenses throughout interest after some time. Credit card issuers analyze interest according to ones regular daily stability, in addition to interest ingredients daily. Paying ones bills first decreases the volume of ones regular daily stability and therefore brings down the amount people fork out throughout interest. The savings throughout interest payments are modest nevertheless add up after some time. People with substantial plastic card rates see the main savings. Saving cash throughout interest enables you to pay off the debt quicker.
Anyone slow up the chance of taking on a past due fee when you fork out ones credit card bills first. Paying ones bills first will give you enough time to get better by almost any episode that could bring about the plastic card corporation to receive ones transaction past due. Delayed expenses may function as high as $35 every occurrence. Avoiding these kind of costs enables you to fork out the debt away faster or even maintain extra money inside your pocket.
Marcia Passos Duffy regarding Bankrate. com shows that shoppers whom are not able to fork out their particular bills a single swelling sum transaction really should help to make many micro-payments prior to the due date. The micro-payment is your payment amount divided in to smaller portions. By way of example, rather than sending in a $100 payment amount from the due date, you possibly can separate ones payment amount in to 2 $50 payments in addition to send the portions throughout first. The luxury of transmitting micro-payments will be a chance to handle more substantial payments throughout smaller, far more workable portions.
Any time spending cards before hand, specially micro-payments, you need to ask for how the transaction become quickly used on ones major. With no unique recommendations, several companies may well hold the transaction right up until ones due date as a result delivering little gain in addition to avoiding past due expenses. Monitor your instalments therefore you learn precisely how much people settled, exactly what payment never-ending cycle your instalments are used on along with your leftover plastic card stability.
For those who will apply for it, please read about Credit Card Approval Criteria. It could be a good explanation for you.
What Happens If You Can’t Pay For Your Credit Card
Debt left unpaid can quickly wreak havoc on your financial standing unless you take the necessary steps to control it.
It is very alarming indeed when you suddenly find yourself at arms length from your death sentence: this month’s astronomical credit card bill. Impulse shopping finally caught up, just when you forgot to factor in the compounding interest to your computation. Reeling from panic — nope, you don’t need to go there just yet. You can still remedy the situation!
My bill just came in and it’s too large to settle, help!
Breathe first, then take a good look at your credit card bill. There are two important details you need right now: the Minimum Payment (or Minimum Amount, or Minimum Amount Due ) and the Due Date .
Before banks issue you a credit card, they’ve already taken into account how much you’re earning per month, and they will give you a ceiling of how much you can charge on credit based on your monthly salary. If you happen to max your limit, banks already made sure you’ll be able to more or less settle the minimum payment, which is roughly about 5% of what you owe.
If you feel daunted by your credit card bill, it’s OK to settle it in installments. Just be prepared to shoulder the interest rates and other finance charges.
Gather your wits and determine how much you can actually pay for the month. This amount should be greater than or equal to the minimum payment indicated on your bill. And make sure to settle it before the due date!
After getting through this month, you also need to brace yourself for the months ahead. Avoid using your credit card until you feel confident you’ll be able to settle the remainder of the debt. Otherwise, you’ll be back at where you started the month before.
And if you’ve settled only the minimum amount, you’ll notice that this hardly made a difference when you receive your next bill. Paying for the minimum amount due will only be enough to pay for the interest and finance charges, and maybe a nick off the base amount that you owe. So in planning ahead, make sure to allocate a bigger portion of your salary to pay off a couple of thousands more than the minimum amount and settle your debt sooner.
Another option you can consider is having a balance transfer. Several banks such as Citibank, BDO, BPI, EastWest Bank, Metrobank and HSBC allows you to convert your credit card debt into manageable fixed monthly payments. Some banks would even allow you to transfer your balance from a different bank.
Balance transfers are a good way wiggle yourself out of debt. Rates average at 0.6% per month, which are lower than most credit card’s 3.5%. Of course, you need to have a decent credit rating to get approved. And make sure to do your homework first to compare rates and compute if you’re getting yourself a good deal and not getting yourself deeper in debt.
What will happen if I can’t pay even the minimum amount by the due date?
This definitely sounds like trouble — yes, it is, and it has several implications.
“The day after your due date, the bank’s system will immediately tag your account as unpaid if no payment has been posted to your account,” Credit Card Association of the Philippines Executive Director Alex G. Ilagan told iMoney via email. “After another 30 days, your account may be blocked and you can no longer use your credit card,” he said.
If somehow you’re able to turn this around, and managed to pay at least the minimum amount couple of days late, or within the 30 day window, then good for you! You have averted the imminent danger of defaulting and the hassle of having to reapply for a credit card. But do take note that this incident will reflect negatively on your credit score. To know more about credit score and credit history, read Credit Reports In The Philippines — What You Need To Know
Aside from getting a negative rating, late payments are also slapped with penalty fees which can range from 4% to 7% of your total amount due, depending on your bank. Add this to the 2.5% to 3.75% compounding interest you’ll incur per month, and you’ll shell out an extra 6.5% to 10.5% on top of your debt each time you pay late. (And if you only settle the minimum amount, it may not even be enough to cover the penalty fees!)
However, if you’re really strapped for cash, and after three months, you’re still unable to pay for your credit card, then your debt will now be tagged as default. Being in default means you failed to pay your debt obligations at the agreed terms. For credit card accounts, this means you failed to pay the at least the minimum amount due for three consecutive months. And this will have serious consequences, for both short and long term.
“If you fail to pay at least the minimum amount due on your credit card for three consecutive months, your account will be cancelled and your name will be included in the negative file which is shared with other banks,” Mr. Ilagan said. “This will prevent you from applying for new cards or other types of loans,” he added.
So, aside from being unable to use your credit card once your account is suspended or eventually cancelled, but you will have to reapply again if you want to use your card in the future. And it will be much harder to get approved this time around, not just for a credit card, but for all types of loans, such as personal, salary, housing, or auto loan, with any bank.
Banks will be cautious to lend you money, not just the one you defaulted on. This can hit you hard especially once you need to borrow money for an emergency, for example when you need to fix your home after it gets damaged by storms or floods, or if someone from your family gets hospitalized for a serious condition.
How can I prevent this from happening?
As soon as you realize you won’t be able to pay for your credit card bill, the best option to take is to negotiate with the bank for a restructuring of your debt.
“This will involve providing the bank with proof that you can repay your debt if you are given a chance to pay it over a longer period in instalments, usually ranging from 12 months to as long as 60 months depending on the size and age (number of months past due) of your obligation, your source of repayment (e.g. your present income, co-maker’s income, properties, other sources, etc.) and the internal policies of the debtor bank,” Mr. Ilagan said.
Banks would be more than willing to accommodate a negotiation rather than having their clients default on their debt. And make sure you stick to whatever new arrangement you made with your bank. This means paying the specified amount within the date agreed upon. Otherwise this will spell more trouble for you.