As per the data offered by the Reserve Bank of India (RBI), digital payments have increased by 55 percent over the past five years. Back in January 2020, the Governor of RBI opined that digital payments accounted for about 97 percent of the daily payment transactions, in terms of volume.

India’s move towards digitalization began nearly a decade ago, but gathered a head of steam in 2016, when the Prime Minister announced the groundbreaking demonetization of Rs. 500 and Rs. 1,000 currency notes. It was during this period that more Indians began harbouring thoughts of owning a credit card.

The COVID-19 pandemic also contributed to the growing popularity of credit cards, as the government and medical professionals discouraged citizens from using paper currency, and advised everyone to switch to digital mode of payments, including using plastic cards. Another major impact of the pandemic — and this is pertinent to the current discussion — is the lack of access to funds during emergencies.

With the pandemic costing millions of Indians their jobs, and thus their source of livelihood, people started to look for various avenues to get immediate access to funds. This made owning a credit card extremely attractive. Individuals can now apply for instant credit cards online, with RBI urging financial institutions to make credit cards readily accessible to prospective cardholders.

Credit cards, as the name suggests, offer cardholders access to credit. Banks and financial institutions provide credit lines to interested parties through plastic cards. Most of the credit cards we own today are unsecured credit cards; that is, we don’t have to provide any collateral to get access to these cards. As such, it involves a certain element of risk, and defaulting on making payments results in cardholders facing hefty penalties in the form of various charges and interest fees.

What is a credit card billing cycle?

This brings us to the crux of our discussion. You have to know your credit card billing cycle to make timely payments. Cardholders are given the credit card due date, by which time they have to make their monthly payments. In simple terms, your credit card billing cycle is the fixed period during which you make payments and transactions. The billing cycle takes into account all the payments and purchases made during that fixed period of time, and upon completion of the billing cycle, the credit card issuer gives you your monthly credit card statement.

For instance, let us assume that the billing cycle for this month started on April 4th. The cycle usually ends after a 30 day period (and thus, May 3rd), after which your credit card statement is generated for the month of April. You are then given a certain amount of time (around 21 – 25 days) to make your payment, and the last day to do so is your credit card due date. You can either pay the ‘total amount due’, or the ‘minimum amount due’.

The total amount due is the total outstanding amount, while the minimum amount due, as the name suggests, is the minimum payment you have to make to keep the credit card active (and not incur hefty penalty charges) on or before the due date.

How does the credit card billing cycle work?

Now, we delve a little deeper into the concept of billing cycles, and the supplementary terms associated with it. Your credit card’s billing cycle begins the day your credit card gets activated. Initially, since you wouldn’t have made any transactions, your credit card balance would be nil, unless there are any upfront fees or charges associated with your card.

This acts as the first day of your credit card cycle, and all the payments, transactions, and spends you do using your credit card get added to your credit card bill. This also includes charges associated with ATM cash withdrawals, recurring EMI payments, and other finance charges. In the instance of money paid back to the credit card, which is usually in the form of waivers (fuel surcharge waiver, for instance), or reversal of any transactions you might have made, these are removed from the final bill you will receive.

Pitfalls of paying only the minimum amount due

As previously discussed, the minimum amount due is the minimum amount you need to pay to keep your account active. However, by paying only the minimum amount, you will then be subjected to interest rates on the remaining amount, which can be as high as 48 percent! This interest is levied every month, until the entire amount is repaid. Thus, by only paying the minimum amount, you will eventually pay more than what you had used because of the recurring interest.

Conclusion

Even before applying for a credit card, it is imperative that you know the terms associated with credit cards, along with the billing cycle, and how much you need to pay every month. The credit card due date is yet another crucial bit of information you have to remember, and by making timely payments, not only will you reap benefits extended by financial institutions through rewards and other loyalty benefits, but you can also improve your credit score.