5 credit card mistakes you should avoid during covid-19 lockdown
Use the time during the lockdown to better understand what you need to make the most of your card benefits.
If you signed up for a travel credit card or fuel card recently, anticipating all the trips you will take and the points you accumulate in the process, you are probably disappointed. But credit cards are still a great way to make transactions easy and have quick access to funds in case of an emergency. However, like almost every other aspect of our lives, the way we use credit cards has to be revisited in light of the covid-19 pandemic. Here are five mistakes that you need to avoid making with regard to your credit card in the covid-19 times.
Opting for moratorium
In March, the Reserve Bank of India (RBI) announced a three-month moratorium on the repayment of all term loans due between 1 March 2020 and 31 May 2020. This also applies to your credit card bills, as it counts as an unsecured loan. If you opt for the moratorium on your credit card bill, you will not be required to pay anything for the three-month period, not even the minimum due amount, and the bank won’t charge any late payment fees. However, banks will continue to levy interest as usual on the outstanding amount. In addition to this, if you make a fresh purchase during this period, the interest will start accruing immediately. At the end of it, you will end up with a hefty payment in the way of interest on your outstanding bill, so it’s not a good idea to opt for the moratorium for your credit card. “Refrain from opting for the moratorium unless you have a medical emergency or a financial crisis, such as a loss of income. Keep in mind that the moratorium is not an interest free option." said Raj Khosla, Founder and managing director, MyMoneyMantra.
Ignoring your bill
You probably haven’t been using your card nearly as much as you normally would because of the lockdown. So it might be tempting to just ignore your bill and save yourself the chore of paying it for now, since it might be a negligible amount, but this would be a blunder. According to Khosla, as a rule of thumb, you should be wary of rolling over credit card balances. “Delaying credit card bill payments will only bump up your liabilities, as the card will keep on accumulating monthly interest at the rate of 3-4% on the outstanding dues, as well as on fresh purchases," he said. Interest rate on your credit card bill can be quite steep, and rolling over the bill for even a few months can end in an unnecessary outgo for you. So keep checking your credit card bill as you normally would, and pay off any outstanding amount.
Buying what you don’t need
As the lockdown eases, shops are reopening and e-commerce portals are starting to deliver non-essential items. You are likely to feel the urge to shop with a vengeance to make up for the time during lockdown, but this kind of “revenge spending", and it can be even easier to go on a shopping spree armed with a credit card. But unplanned spending can put a serious dent in your finances. “As people are working from home these days, much of the shopping is online. You must ensure that you don't get carried away and over use the credit card. Stay within your budget. It is advisable to not use your card for luxury items and to spend only for essentials like medical expenses, utility bills, insurance premium and household necessities," said Khosla.
Losing your card or being defrauded
This might not seem like a huge risk because you are likely staying at home, so the chances of misplacing your card is lower, but if you do end up losing or misplacing your card, it might mean more trouble than usual. According to Khosla, in the absence of proper backup services, a replacement card may take a longer time to reach you. While most banks have a zero liability policy for credit cards, which means you are not liable to pay any penalty upon losing your card, it’s crucial to report a loss immediately.
The chance of being defrauded has gone up significantly since the pandemic hit, as fraudsters are coming up with new covid-related malware and phishing apps to lure customers (read more here bit.ly/3cNaLjA). So it’s important to be careful when you transact with your card online. However, it’s generally easier to recover any losses due to fraud on a credit card, than it is to recover losses from your bank account, so it’s wise to use your credit card instead of debit card or internet banking for such transactions.
Not using your reward points
All credit card-issuers offer reward points, but the value of a reward point can vary across cards. While some banks offer one point for every ₹100 spent, and the value of a point could be 20-40 paise, other companies that offer two points for every ₹100 you spend. Since you might not be making very big ticket purchases on your card lately, the accumulation of points might not be substantial for this period. But if you have accumulated points, be cognizant of when they will expire. “Do not let your credit card reward points expire. If you have a rewards repository available, do use these points for essential expenses and save some money," said Khosla.
A credit card is an essential tool, but one that needs to be handled with caution. If you’re not careful, you might end up with a hefty credit card bill or end up going down the slippery slope of a debt trap. Use the time during the lockdown to better understand what you need to make the most of your card benefits.