Credit cards in UAE provide the facility of instant credit. It provides momentary liquidity. During any unpredictable times like the present COVID-19 situation, a lack of awareness of certain aspects can harm your credit score and also impact your financial life. This may lead you into a debt trap and you may lose certain credit card privileges.
Check Here: Financial lessons you can learn from the COVID-19 crisis
Here in this article, we present you with certain credit card mistakes that you should avoid under unfavorable financial circumstances.
- Avoid Credit Card cash withdrawals
- Do not spend more than 30% of the credit limit
- Moratorium on Credit Card dues
- Do not let your reward points expire
- Do not ignore interest-free credit period
1. Avoid Credit Card Cash withdrawals
Cash withdrawals through a credit card will attract two-way charges. One expense is the cash advance fee and the other expense is interest rate charges that are levied from the day of cash withdrawal till the payment is made. If you’re doing these withdrawals frequently, it becomes a burden as charges are pretty high.
Suggestion- Let credit card cash withdrawals be your last option. In case, you have no other option and you have to withdraw cash then make sure that you repay the entire amount as early as possible. By doing this, you are reducing the impact of paying associated fees and interest charges.
2. Do not spend more than 30 percent of credit limit
Credit utilisation ratio is the proportion of the credit card limit used by the card holder. The lender set the credit limit on the credit card. The best practice is to utilize credit cards below 30 percent of the credit limit. If a card holder spends more than 30 percent of the credit limit then it is considered as being credit greedy and it is an alarming sign to the credit bureaus. The credit bureaus drop the credit score by a few points when more than 30 percent of the credit limit is spent on the credit card. Hence to build and maintain a high credit score ensure that credit card utilization is below 30 percent of the credit limit.
Suggestion- If you have been spending more than thirty percent of the credit card limit then request your card issuer to raise your credit limit. You can also use additional credit cards. By doing this your credit card utilisation will be below 30 percent and credit card limit gets enhanced.
Check Here: Tips to increase your credit card limit
3. Moratorium on Credit card dues
Credit card users who are facing difficulties in repaying credit card bills can get moratorium on credit card Outstanding dues. This can save them from incurring any late payment fee. It also protects them from having any adverse impact on credit score. Those who are availing moratorium will continue to accrue hefty finance charges on their Outstanding balance.
Moratorium is legal authorisation of postponement of payment. The payment dues are postponed for a certain period. The interest continues to charge on the outstanding balance. As a result, by availing moratorium you will be paying more on the outstanding balance. Credit card dues continue to pile up with interest charges and you may land into a debt trap.
Suggestion- Pay your credit card bill in full amount. If you have any difficulty in paying your credit card dues, avail the facility of personal loan in UAE. You can also convert your big ticket expenses into EMIs. Depending upon your card issuer you can choose the option of EMI tenure. The interest rates on these alternatives given here are much lower than finance charges levied on your outstanding credit card dues.
4. Do not let your reward points expire
Credit card providers provide reward points to their cardholders. Credit cardholders can use their reward points to purchase certain products and services. Some card issuers also allow their customers to pay their Outstanding credit card bill. Reward points come with an expiry date generally around 3 years. Credit card holders do not track their rewards expiry date and reward points tend to expire.
Suggestion- Always know your credit card rewards expiry date. Understand the terms and conditions of the credit card reward points program. Remember to redeem points before they expire.
Check Here: How to maximize credit card rewards and offers
5. Do not ignore interest free credit period
The time period between the credit card usage/ transaction and your credit card due date is interest free credit period. This period depends on the card issuers, usually, it ranges between 20 to 52 days. Interest charges are not levied on the transactions made in this period. But remember to pay all dues by the payable date. This is the best feature of a credit card that you get short term relief for payment. In times like these when many are facing liquidity crunch, credit card interest free periods can be of great help.
Suggestion- Plan and spend your credit card expenses especially the lump sum payments that you do using a credit card. By doing this you can take the maximum advantage of your credit card. If you have multiple credit cards then you can distribute your spending on different credit cards and take the maximum benefit of interest free period.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
