A credit card is simple to use but as a product it is complicated. If you do not know how to control it, you may land up being controlled by it. The first step is to understand how not to get overburdened by credit and for that you would need to know a few terms that appear on your credit card statement.
Cycle cut date or statement date
It is the day when your bill gets generated. If you fail to make your payments on time, this is the date from which the interest starts getting calculated on your account. Remember that credit cards give you an interest-free period, which is usually 25-55 days.
Payment due date
This date is the day when your payment should reach your bank. If you plan to pay online or make a cash payment towards your credit card at the bank’s counter, it’s okay to pay on the due date since money reaches your account instantly. However, if you are paying via cheque, it’s best to drop the cheque a few days before the due date. That way the money will reach your account by the due date.
If you fail to pay by the due date, you will be charged a late payment fee. Usually, banks give around five days’ grace period over the due date and may not charge you a late payment fee for the delay during that time. For instance, if your due date is 10th of a month and you make a payment on the 12th, the bank may not charge you a late payment fee. However, keep in mind that this is not your right and depends on the bank’s discretion.
Total amount due
This is literally the total amount which is due on your credit card. It includes the accumulated outstanding amount, the interest on it and even other charges such as the late payment fee. Ideally, you should be paying this amount every time in full.
Minimum amount due
This amount is fixed by your bank and this is the minimum amount you need to clear every month if you are unable to pay the total amount due on the card. This amount is usually 2.5-20% of the total amount due on your credit card. If you fail to pay the minimum amount due, you are considered a defaulter. But don’t get into the habit of paying this amount every month and try to pay off the total due instead. If you pay only the minimum due amount, it may take a long time to clear your debt since interest will keep getting accumulated on the unpaid amount. Eventually, you also run the risk of getting into a debt trap.