The importance of avoiding late repayment of credit card bills

19 September, 2012

Credit cards are a great way of managing finances. They offer instant loans with a low fee i.e. you just have to pay the 2.5 percent of the bill amount when you charge the card and then enjoy an interest free period of 51 days to repay the debt before the card company begins to charge an interest.

The pros of using credit cards

Many people prefer to use credit cards in place of cash for many reasons. To begin with, the card offers “credit.” This means that you do not have to have money in the bank in order to purchase whatever it is you need. Secondly, it is a secure way to shop because if you lose your money or if your hand bag is stolen there is nothing you can do. However, if your card is lost or stolen, all you need to do is to make a call to the card company and your card is blocked, keeping your account safe. In any case, even if someone misuses your card and you file a complaint within 42 hours, the money is insured – you are not held accountable!

Then comes the interest-free period where most cards offer 51 days to repay the debt after which, the interest begins to accrue. This interest can be pretty high – as much as 3 percent a month! The initial interest-free period may seem quite appealing at first, but bear in mind that interest is how most lenders make their money. This not only applies to credit cards, but also along with any form of credit lending – such as loans for business, personal loans – and for this reason you should always consider the interest rate before applying for any loan or credit card.

Why do you need to pay credit card bills on time?

Credit cards are a convenient way of shopping and a great source for emergency cash. However, the bills need to be paid on time. There are two very important reasons why the bills need to be paid on time:

  1. Non-payment or late payment will affect your credit score
  2. You will get deeper into debt

Your credit score

Your credit score tells the world of lenders just how “creditworthy” you are. This is a three digit number that gives lenders a good idea of how likely you are of returning the cash you borrow from them. This score develops over time. Every time you make a payment, or fail to make a payment on time, the creditor reports the payment to the credit bureaus, the ones responsible of maintaining your credit score and providing the creditors with the same. The more you delay your payments to creditors, or fail to make payments altogether, the worse your score grows.

Consequences of a bad credit score

There consequences of not paying on time are; rejected loan applications, rejected credit card applications, very high interest rates demanded by lenders if they do consider your loan application. This could be particularly bad with high interest Australian business loans. A bad score will invariably lead you to a brick wall, with your back against it, and with no option of finance in the future should you ever (and you will) need it.

That’s as far as your credit score is concerned. Now let’s talk about your debt situation.

Not paying credit card bills on time gets you deeper into debt

With each missed payment the card company will charge you a late fee plus an interest. The interest on the charged amount could be as high as 3 percent per month! It should not take you too long to do the math, which I hope will make you get up and do something about any pending card bills.

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