Don't draw money from ATM using a credit card!

Everyone knows that credit cards can be a lifesaver in crisis situations. The interest free period, the reward points and the special discounts make it a handy tool for indulgent shoppers too. Yet careless treatment can turn this into a nightmare.

Do not buy up things just because you have a valid credit card. If you run up a bill that is larger than your repayment capacity, you just pushed yourself into a debt trap. If you are unable to repay the amount within the interest-free period, your loan might incur an interest rate ranging between 24 per cent to 48 per cent.

Make sure that you have repaid the entire bill amount within the prescribed date. If you opt to roll over the credit, you may be denied an interest-free period the next time you use the credit card.

You can see two amounts on your credit card statement: the total amount and the minimum amount. The minimum amount is 5 per cent of the amount payable.

If your bill amount is Rs 5,000, then the minimum amount is Rs 250. If you just pay the minimum amount, the next transaction would not be interest-free. You will have to pay a high interest in that case.

So either repay the entire amount within the grace period or abstain from using the card until you do so.

ATM withdrawal

Technically, you can use your credit card to draw money from the ATM but it is a bad idea. You will have to pay a high interest since the day you withdrew money. There are withdrawal charges in addition.

If you are desperate to use the credit card and unable to repay the entire amount at one go, you can opt for an EMI option. Many credit card companies offer an option of repayment as equated monthly instalments. You can contact the customer care and ask to convert to EMI and cut the interest by 10 per cent to 15 per cent.