A credit card is a best friend that allows you to give money during any emergency period. After some days, we have to pay off all funds if we forget to pay the bill then it acts as an enemy. The same incident happened with me I am going to share an experience of how a credit card eats my savings. You will know what was my mistakes & take advantage to learn from my examples.
How did the credit card eat my savings
In 2018, I received my first credit card from the bank. The limit of the card is $1500. At that time, I used the card to pay software bills—$ 500 I had used in the first month—moreover, more money for consumed every month to pay for fuel bills or some eating. I thought the time duration of the billing cycle on every purchase is around 50 days. After using all the money of credit card, then zero limits appeared in my credit pannel.
I had two significant transactions that were $500 (total $1000.) I converted my debt in EMI for 13 months. The late fee applied cause I did not pay till 3 months. 3 month later, I started to spend my EMI that were around $137. I paid only a minimum amount of my bills rather than the full amount.
Sometime later, I missed to pay the debt (late payment fee) and cross due date charges as well as withdraw 2 times funds to buy office chairs. I fulfill every month EMI, but along with withdrawing money, for this reason, my outstanding balance was stable.
One day, I checked my credit card balance in my bank, which was just like that same $900. I confused that money I was paying every month by EMI where it is going. Then the institution employee said you were paying only the minimum amount that means an interest rate of your total outstanding balance. As a result, your outstanding balance was not fulfilling. In the end, I paid all outstanding balances or closing the Emi fee. That why credit card eats savings until we do not take the seriousness.
What were my mistakes
Billing period – I was unaware of the credit card billing date. The billing date is the date on which the credit card statement release every month. For example, if a card statement generates every 3rd march then the billing cycle starts from the previous 3rd Feb to the current 3rd March. All withdrawals, purchases, payment, etc will show up in your credit card monthly statement.
After 3rd March, any activity will reflect in the next month of the billing period. I used the 3rd April credit card and next time 14 April However, I thought that I have 30 days interest-free days according to 3 April (3 May) or 14 April (14 May). But the truth is both transactions have the same billing cycle was 3 May. I crossed 3 April and interest + late fee charges I had to pay.
Minimum pay & Emi – After converting all my debt into Emi, I paid only minimum payment before due dates that mean only transfer interest charges, not an outstanding payment. It is only a small amount of my total outstanding balance. That helps to avoid late fees or penalty charges. But my outstanding payment was stable or interest charges of every month 3-4% was given by me.
Everywhere use – I used my credit card for everything. Withdrawing money, shopping, paying the electricity bill or fuel. I didn’t know the proper meaning of the credit card. For these activities, I could take money from my savings. All-time use, all limits had consumed. As a result, i could not pay all debt in one time so i selected EMI. The 40-45% total interest rate I had to pay.
Due date – Due date is a deadline date which is the last day to pay the debt of credit card. You can pay your credit card outstanding before the payment due date, but if you miss the date, late payment fees and other charges will be levied. I missed many times so late fees or other charges levied. That is the main reason a credit card eats my savings.
Withdraw funds – During debt paying, I withdraw some funds that were the main reason my outstanding bill was not decreasing. Every time I used a credit card in the Atm machine that charge every withdrawal.
How we should avoid charges or use a credit card wisely
- Remember the credit billing cycle. Try to pay all amounts before the due date then no charge will occur.
- Never pay a minimum payment. Minimum payment means you are paying a low amount of total outstanding or paying interest of your all transactions. The total payment must be paid.
- Never convert the maximum amount in EMI. Cause credit provider takes the charge of converting debt into EMI.
- Don’t use the whole limit of your credit card. Only use an amount that you can pay easily only at one time.
- A credit card is not similar to a debit card. Both are different. Don’t use a credit card for everything. Where debit card possible to use then you should debit card.
“DON’T CUT UP YOUR CREDIT CARDS, THE PROBLEM IS NOT THE CARDS, IT’S THE LACK OF FINANCIAL LITERACY OF THE PERSON HOLDING THE CARDS AND ALWAYS MAKE THE BEST OUT OF A BAD SOLUTION”
The credit card billing may different 27-31 days The billing period depends on the type of banks & credit card. Once you pay your full outstanding amount before due dates as a result credit card plays the best role as a friend why it is giving fund at any emergency time or interest-free for some time. Before i didn’t use a credit card wisely so credit card eats my saving i paid $2000 whereas my limit was $1000. Now I have a credit card that only manages at crisis time.
I keep my credit card during traveling to a far destination in the car & keep some cash. If any emergency, for example, car spare part error or any problems if a happen then my card delivers some money for the incident. After solving the problem I can pay before due dates.
All in all
Most people don’t use the credit card wisely or say it is gambling equipment. They need to focus on the principle of the proper use of credit cards. Debit or credit cards look the same but the working process is more different. Where is possible to use a debit card we should use otherwise credit card offers emergency fund without any interest till some time. After crossing the period, it takes charges according to debt.
What is your credit cars eating your saving and you are using wisely? Please do comment and hit the share button to share this article.