Consumer spending increases as summer break for students gets closer in the month of May-June every year. This increase in spending is also accompanied by an increase in credit card usage because of the many benefits and savings potential that credit cards offer. Ensure to use your credit cards carefully in this situation to get the most out of them and avoid jeopardising your long-term financial stability.
To help you maximize the benefits of credit cards and not letting them become a bane instead of a boon, you need to avoid the following blunders when using your AU bank LIT Credit card over the holiday season.
Exhausting all of your available credit limit
Holiday shopping can occasionally result in overspending due to the widespread belief that the festive and holiday seasons are great times to buy new things and the abundance of lucrative offers and discounts on AU Bank credit card purchases. More people are applying for credit cards to take advantage of holiday season promotions.
However, when cardholders charge more than they can afford to pay back, the straightforward option that many opt for is to pay only the minimum amount due, which is typically 5 percent of the total balance owed. Even though there won’t be a late payment fee, the remaining balance of the unpaid bill will nonetheless continue to accrue interest in the form of financing charges, which in some cases may be as high as 47-48 percent p.a.
Consider breaking up some expensive purchases or your credit card balance into monthly installments to avoid building up credit card debt that you won’t be able to pay off in full on or before the due date (also known as instalment payments). The cardholder can use this AU Bank credit card feature to pay off their entire balance in a series of monthly payments over a period of three to sixty months at an interest rate of twelve to twenty-four percent per year, which is significantly less expensive than the high finance charges assessed on outstanding balances.
You can stop using credit cards in a number of ways. Because the associated interest cost is typically significantly lower than the finance charges assessed on credit cards and your long-term financial goals are not jeopardised, you have the option to borrow against securities, sell low yield investments, or transfer a AU Bank credit card balance to leverage your long-term investments.
Using a credit card to make a cash withdrawal
A cash advance fee of 2.5 percent to 3.5 percent of the amount you withdraw will be applied when you use your credit card to make a cash withdrawal. Cash advances and withdrawals, in contrast to other AU bank LIT Credit card transactions, are subject to finance charges from the date of the withdrawal until the date of repayment. Thus, cash advances from credit cards can quickly empty your wallet, especially if you frequently use your card to make withdrawals and pay high finance charges of up to 47%–48% annually.
Instead of using your credit cards to make a cash withdrawal, you might want to think about using loans that offer quick disbursements, like a loan against your credit card, a loan against gold, a loan against securities, or a personal loan. These loans have lower interest rates compared to the costly finance fees and cash advance fees assessed on credit card cash withdrawals. Remember that you shouldn’t always choose to use your credit card to withdraw cash. Make sure to return the full sum as soon as you are able, even in this case.
Selecting an EMI period without taking repayment capacity into account
When applying for a AU bank LIT Credit card, it’s never a good idea to ignore the EMI option. Depending on the card issuer, the EMI facility on debit and credit cards is frequently offered for terms ranging from three months to three years. The length of your EMIs must be determined after considering your capacity to pay. Longer loan terms result in lower monthly payments for borrowers with lower repayment capacities, but the overall cost of interest is higher in these situations. However, in order to reduce overall interest costs, borrowers with greater repayment capacity can select shorter loan terms.
You should keep in mind that a shorter loan term has a higher EMI because there is a greater likelihood that you will experience a delay or default in making such EMI payments, particularly in the event of an unexpected expense or financial exigency. It’s important to keep in mind that your credit score is influenced by how you handle credit repayment. Making regular, on-time AU bank LIT Credit card payments will increase your eligibility and approval chances for credit in the future. Make sure to consider your capacity to pay when determining the length of your credit card EMI in order to prevent defaulting on your outstanding debts.
Not understanding the additional advantages offered
Many credit card issuers are luring customers and encouraging them to apply for credit cards by offering a variety of rewards on purchases made during the holiday season in an effort to increase consumer spending on credit cards. They collaborate with manufacturers and merchants to provide a variety of unique incentives to customers during the holiday season. These benefits might include substantial price reductions in the form of cashbacks and instant discounts, extra reward points for holiday shopping, a rise in the number of products that qualify for EMIs, and so forth.
Therefore, before making any holiday purchases or deciding to apply for a AU bank LIT Credit card, be sure you are aware of any additional benefits that might be provided by your credit card issuer. Utilize your credit cards, if you have any, to take advantage of promotions that will maximise your rewards and savings. If you have multiple credit cards, review the offers and benefits that each card’s issuer is offering.