LOUISE FAIRSAVE: Christmas credit
The major benefit of holding a credit card during this season is that you avoid undue security risk by not having to carry around large sums of cash. You may also get interest-free use of the funds spent until the payment due date.
The credit card provides shopping flexibility. Unlike in-store credit, you can shop at different merchants, at different times of the month, in different countries even requiring different currencies. At the end of the month you can look forward to receiving a statement summary of all the charges.
A credit card can also provide cash advances. This facility is really intended for emergency situations and comes at a relatively high cost.
Credit card issuers like you to use their credit facility as that is a source of service and interest income for them while it provides a service to the merchants and convenient ways of shopping for you.
You should examine your statement carefully and note certain key information:
The posting date is the date that the transaction is posted to the card account. The closing date is the cut-off date for postings.
The transaction date is the date of the transaction with the merchant. This is not shown on the statement.
The payment due date is the date that your payment must be received by the credit card company in order to avoid late payment penalties and/or interest charges.
The closing date is a real important date to observe. Transactions are filed by the merchant with the credit card company. This filing may be on the same date (for example, when filed by telephone) as the transaction or it may be done a day or more later.
The filing date depends on the merchant. If the merchant is careless and loses the slip, it may never be filed. The closing date is the day on which the credit card company checks that all the transactions received have been posted. Any other transactions received after that date will be posted in the next billing cycle.
If you have made a purchase near to the closing date, and it is not filed in time for that billing cycle, you may have that an extra month before the related payment falls due.
It is up to you to be disciplined and prompt in making your payments. The most important thing to remember if you are trying to avoid unnecessary charges is that if you keep any balance running on your card, you will be charged interest from the posting date of every transaction. If there is no opening balance on the card, interest will only be charged if you miss the payment due date.
It is important to note that the interest will be accrued from the posting date, not from the missed due date. So, say the payment due date was June 14 and the transaction date was April 27. If you pay the full balance by the due date, there is absolutely no interest charge. If you miss the due date or only pay in part, you will be charged interest from April 27 on the unpaid balance. Furthermore, since your account is now carrying an outstanding balance, you will immediately attract interest charges on all new purchases from the posting date of those transactions.
There is therefore significant financial merit in paying your card balance in full each time. Furthermore, a day or two late payment can mean you will incur penalty and interest charges plus interest charges on all new purchases in the next billing cycle.
Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op credit Union Ltd.