< >

Home > Money > Credit Cards Last Updated: Sep 10th 2022

How to avoid penalties & higher interest rates on credit cards?

Credit card is a double edge sword with many benefits on one side and debt trap on other side. Important to know how to avoid penalties & higher interest rates on credit cards while enjoying the benefits.

How to avoid penalties, interest on credit cards

Owning a credit card is easy, but if you fail to use it judiciously, it can drain your hard-earned money, leading to financial crunch and landing you into debt trap. People should use their credit cards carefully so that they don’t get lured into impulsive spending. The best way to avoid paying interest rate is by paying credit card bills before the due date.

If you are forgetful or travel too much then you can select ECS options (or automated payment mode) for paying directly from your bank account or other e-wallets. But ensure to check bill thoroughly once you receive it and also keep sufficient balance in your account. For any dispute, immediately call the helpline number or write an email to the credit card provider.

Pay before due date

A person should always pay before the due date, to avoid paying huge interest and penalties. It is advisable to be cautious as you may have to pay interest rates as high as 36%-48% on the outstanding balance of a credit card after rolling-over. Moreover, to get rid of the debt cycle it will be time consuming, expensive and mentally exhausting.

First acknowledge the debt you have and work around on how to get rid of the debt. Follow strict financial discipline and get rid of your debt at the earliest. One way could be you could look at some extra earning options and repay your debt.

It is always advisable to clear 100% rather than making part payment. For example, credit cards issued by Visa or Mastercard usually has an option to pay 5% as a mandatory payment of the credit card outstanding amount every month, and the balance gets rolled over to the next month. You should always avoid paying only 5% as this is actually the main reason for people to land up in the debt trap. If you fail to pay the minimum amount of 5% by the due date, then you will be charged for late payment along with interest charges and taxes. The accumulation can drag your repayment period for a year and paying interest rate as high as 36%-48%.

So be very careful while using a credit card. Always try to pay 100% of your dues, on time, to ensure that your interest cost is nil. Or it is always better to avoid using credit card if you are not sure of repaying it on time, unless absolutely required.

Quick Facts

What are different Credit Card APRs and what they mean?
APR Type Applicability
Introductory APR aka promotional APR that would offer lower APR for a limited initial period.
Purchase APRapplicable for credit card purchases
Balance Transfer APRapplicable for when a credit card balance transferred to another.
Cash Advance APRapplicable for Cash Advances. Grace period or interest free period may not be applicable.
Penalty APRapplicable when failed to make credit card payments on-time (generally 60 days / 2 months).

EMI Option

For big ticket purchases if you are unable to pay the full amount at one go, it is advisable to convert it into EMI facility, as interest rates will be much cheaper with EMI payment.

Balance Transfer

If a person has multiple credit cards then they can opt for balance transfer in which the debt from one credit card can be transferred to another at a lower interest. Usually, there is processing charge for balance transfers, which is generally 1% of the amount or sometimes card issuers can offer zero-interest balance transfer facility. It is advisable to not do balance transfers frequently as it can impact your credit score.

Bill Clearance

If for any reason you fail to make payment of your outstanding balance amount in the previous month then first clear the dues and then do new purchases. Rolling over the outstanding balance to the next billing cycle will incur monthly interest rate of 3%-4%. If you keep rolling over the outstanding payment and continue to make new purchases, not only the interest portion will inflate, you will not get the interest-free period on credit card purchases, which is usually available between 30 to 50 days. So, unless your outstanding dues are cleared don’t make new purchases.

Cash Withdrawal

Deposit cash withdrawals from ATMs at the earliest, as these withdrawals do not have any interest-free period. Usually there are one-time fee along with interest charges that start from day one of the cash withdraw till the day of full repayment.

Overseas Transaction

It is better to use a forex card rather than a credit card while doing transactions abroad as foreign currency transaction rates are usually very high. Conversion rates are also very expensive if you withdraw cash from ATMs.


Use credit card carefully to avoid draining your finances and landing in debt trap.

Disclaimer: This article provides an overview and general guidance, not exhaustive for brevity. Please refer Income Tax Act, GST Act, Companies Act and other tax compliance acts, Rules, and Notifications for details.