If you already have a credit card or are looking for one, you would have heard all sorts of stories about how to find the right credit card or how to apply for one but no one talks about the payment of credit card bills. Paying your credit card dues on time is the key to building and maintaining a good credit profile. Even a single missed payment can have a negative impact on your credit score which, in turn, can make it difficult for you to get new loans in future. On top of that, missed payments on credit card result in huge interest charges.
Here we will discuss the most important aspects of paying credit card bills. But before that let us delve deeper to find out how a credit card payment cycle works.
How payment due date and interest-free period work?
Credit card bills are cyclical so a new bill gets generated every month and it reflects all the purchases made since the last bill was generated. The payment due date is set 21-25 days after the date of bill generation and in this way you can enjoy an ‘interest-free period’ of about 45-50 days.
Let us understand this with the help of an example.
Suppose your SBI credit card bill payment is due on 25th August and your bill was generated on 4th August. This means your previous bill was generated on 4th July; any purchases or payments that you made on the credit card after this date will be included in the next bill and the payment will be due on 25th August. So, the period from 4th July to 25th August is your interest free period as you are required to pay the entire outstanding amount on 25th August.
Now, let’s say you purchased an appliance on 6th July. The interest-free period on this item will be of complete 50 days. You made another purchase on 30th July and on this you will enjoy an interest-free period of 26 days only.
How to utilize your interest-free period smartly?
Credit card is also a type of loan and with a 50-day interest-free period it is a ‘free loan’ for those 50 days. When you make a big-ticket purchase with your credit card, your bank pays for it initially and it has to be repaid in easy EMIs over a period of time.
To make the most of your interest-free period, you should make high-value purchases in the beginning of a bill cycle. This way you will get at least 45-50 days interest-free period so that there is a long gap between the day you make the purchase and the day you have to pay the bill.
In the above example, if you purchased an appliance worth Rs. 15,000 on 5th August, you would have to pay the amount on 25th September (in the next bill which will be generated on 4th September). So, you have complete 50 days interest-free period. The cash amount you have saved in lieu of putting this expense on a credit card can be put to good use such as parking it in an interest-earning instrument like savings account or fixed deposit.
If you have multiple credit cards with different due dates, you can smartly juggle your purchases and payments in a manner that it allows you to enjoy the longest interest-free period.
Interest-free period can make your credit card a zero-cost loan if you make smart use of it. However, an important thing to note here is that this interest-free benefit will not be applicable under two scenarios-
- If you have not paid the entire outstanding amount in the previous month’s bill.
- If you withdraw money using your credit card (cash advance).
How to Pay Your Credit Card Bills?
It is quite clear that paying credit card bills on time is extremely important. However, many of the credit card holders only know one or two ways of paying their credit card bill. Using mobile app of the bank and bill desk are the two most popular ways of paying credit card bills. But what happens if it is the last day of bill payment and for some reason you cannot access these methods. Banks have set many ways in which you can pay your credit card bills as mentioned below-
NEFT- You can pay your credit card bills by using the NEFT method. It is quite convenient as the payment can be made from any bank account and it is quite secure. You just have to login to the net banking portal of the bank from which you want to make the payment and enter your credit card number in place of account number. All banks have a specific IFSC to receive credit card payments. For example, in case of SBI online payment through NEFT, ‘SBIN00CARDS’ should be used in place of IFSC.
Mobile Banking- This is also one of the easiest and safest ways of paying your credit card bills. Download the mobile banking app of your bank and login using your customer ID and password. Go to the bill payment section, select the account and make payment.
ATM Funds Transfer- Some banks also offer the feature of ATM Funds Transfer. Under this, you just have to walk into your bank’s ATM and transfer the funds towards your credit card account.
Internet Banking- If you have a credit card from the same bank in which you have savings/current account, you can login to the net banking portal and pay your credit card bills directly. In this case, the amount gets credited into your card account immediately. However, if you have only availed credit cards service from the bank, most of the banks allow you to login as only a card user whereas some banks may have a completely separate credit card business. For instance, SBI Card is a payment solution provider established as a joint venture between State Bank of India and Carlyle Group. So SBI credit card net banking solution is provided by SBI Cards and not by State Bank of India.
Cheque Payment- Another easy offline way to pay your credit card bills is by drawing a cheque in favour of it. For instance, for paying HDFC Credit Card bill through cheque, you should draw the cheque payable to HDFC BANK CARD A/C (Your Card Number) and drop it at the nearest drop-box located in a branch or ATM.
Auto Pay/Auto Debit- If you forget your bill due dates often, then this method suits you the best. You just have to set standing instructions on your savings/current account to debit the amount payable from the account directly. You can either set it for paying the minimum amount due or the total outstanding amount. You may be required to fill a form for autopay registration.
Over the Counter Payment- Walk into the nearest branch of your bank and make over the counter payment of your credit card bills. This type of payment may attract some extra charges.
Bill Desk- Different banks have set up their bill desk for the payment of credit card bills. You just have to visit the bill desk website, enter your credit card number and fill other fields like email ID and phone number, etc. Now select the bank/debit card through which you want to make payment. You will be redirected to the net banking portal of the respective bank or a payment gateway. Paynet is the SBI credit card bill desk where you have to enter your email address, card number, mobile number and payment amount. Then select the debit card/net banking to continue the process.
How much to pay- minimum amount due, total outstanding or more?
Different people have different ways of paying their credit card dues. Some card holders pay the entire outstanding amount as and when it is due while others can only manage to pay the minimum amount. Also, there are some who make several payments in a month in order to reduce the debt and at the same time maintain a sufficient cash flow. But which of these is a good payment strategy? Let us discuss in some detail-
Paying the Minimum Amount Due- It is not advised to make the minimum payment every month because rest of the outstanding amount gets rolled over to the next statement. Any amount that remains outstanding in your account incurs interest charges. Credit cards, being one of the most expensive forms of debt, can ruin your financial condition if you do not pay the total outstanding amount per month.
Paying the Total Outstanding Amount- This is the best practice. You should make the payment of total amount due on or before the due date. This way the interest-free period will also be applicable every month plus there would be no penalty or extra finance charges.
Paying More Than the Total Outstanding Amount- If you pay an amount higher than the total outstanding value, this will be shown in your statement as a negative balance. It is a form of extra credit added to your existing credit limit but it is not given by the bank. This method is helpful when you want to make a big purchase but you don’t have enough credit left. Say, you want to purchase an item worth Rs. 37,000 but your credit card has a limit of only Rs. 30,000. In this case you can pay Rs. 7,000 extra and then purchase the item. However, this is not an advisable practice.
When to make the payment?
The due date mentioned on your credit card statement is the last day to pay the bill but if you choose to pay it before the due date, that is also perfectly acceptable. In fact, paying the bill before the due date may be a good practice for those who are constantly running behind on their payments. In case you already have some amount outstanding in your account, you should pay it whenever you have the funds because credit cards incur daily interest charges so it is better to clear all your outstanding dues as soon as possible to avoid paying extra interest charges.
However, this strategy may not work too well for those who have been paying their dues regularly. This is because the amount may earn interest for a few days if you put it into some investment instrument. Although the benefit would be really small but paying your credit card bill in advance would not do any good. Some people might think that this practice is helpful in improving their credit score but that is also a myth. Credit scores are based on whether you have made all your payments on time; even if you make minimum payments your credit score would stay neat.
The Bottom Line
Credit cards are simple for those who have basic financial knowledge but they can be complicated for a layman. There are, basically, three rules of thumb that you should live by. One, do not roll over your credit; pay the entire outstanding amount every month because even if a small amount remains outstanding in your account, you would not be eligible to avail the interest-free period. Two, do not panic if you miss the payment by just 2-3 days because only the payments that are delayed by more than 30 days will have a negative impact on your credit score. Three, interest is charged on the daily balance of credit cards so the sooner you clear your dues the better it is.
Plan your credit card usage in a way that you have to pay minimum interest on credit card. Apart from these, you should avoid overspending on your credit card so that you can easily manage EMI payments.
Credit cards are the perfect tool to help you make all your dream purchases. Maintaining good payment habits will not only save you from paying extra interest but will also go a long way in building a good credit profile.