Can You Overdraft a Credit Card?

Credit Card

Credit cards have become a popular financial tool for many people around the world. They offer convenience, flexibility, rewards, and a lot of other benefits. However, it is essential to understand the limitations and drawbacks of using a credit card. One of the most common issues that credit card users face is overdrafting.

So, let’s move and understand what overdrafting a credit card means, whether it is possible to overdraft a credit card, the disadvantages of overdrafting, what to do if you overdraft your credit card, and how to avoid over-limit transactions on credit cards. This article would provide you with detailed insights into the world of credit card overdrafting.

What is Overdrafting a Credit Card?

Overdrafting a credit card is when you spend more than the available credit limit on the card or withdraw cash from credit card over the limit. It is similar to overdrafting a bank account where you withdraw more money than you have in your account. When you overdraft a credit card, you are essentially borrowing money from the card issuer beyond your credit limit.

Is it Possible to Overdraft a Credit Card?

No, it is not possible to overdraft a credit card in the traditional sense. Unlike a bank account, where you can withdraw more money than you have and incur overdraft fees, a credit card has a pre-set credit limit. If you attempt to spend more than your credit limit, your transaction will be declined under normal circumstances, whether it is an online Airtel Axis Bank credit card or any other bank credit card.

However, some credit card issuers may allow you to go over your credit limit, but they may charge you an over-limit fee. The over-limit fee varies from bank to bank. It all depends on your credit history, past transactions, etc.

Disadvantages of Overdrafting a Credit Card

There are several disadvantages of overdrafting a credit card including:

High Fees: If you are allowed to go over your credit limit, you may be charged an over-limit fee. It depends upon the issuer or the bank. Over-limit fees can add up quickly and if you don’t pay them on time, they can accrue interest making it even more challenging to pay off your balance.

Higher Interest Rates: When you overdraft a credit card, you are essentially borrowing money from the issuer. However, unlike regular purchases, which may have a grace period before interest accrues, overdraft transactions may start accruing interest immediately. Also, some issuers may increase your interest rate if you exceed your credit limit.

Negative Impact on Credit Score: Overdrafting a credit card can negatively impact your credit score. Exceeding your credit limit can lower your credit score as it indicates to lenders that you are not able to manage your credit responsibly.

Difficulty in Paying Off Balance: Overdrafting a credit card can make it more challenging to pay off your balance on account of higher fees, increased interest rates, and a number of penalties.

What to do If You Overdraft Your Credit Card?

If you overdraft your credit card, the first thing you should do is stop using it. Continuing to use your card will only make your balance worse and you will incur additional fees and interest charges. Next, you should review your credit card statement to determine how much you owe. Once you know how much you owe, you can create a repayment plan to pay off your balance as soon as possible.

You may want to consider making more than the minimum payment to reduce your balance faster and avoid accruing more interest. If you are having difficulty paying off your balance, you should contact your credit card issuer to discuss your options. Many issuers have hardship programs that can help you reduce your interest rate or set up a payment plan.

How to Avoid Over-Limit Transactions On Credit Cards?

Here are some tips to help you avoid over-limit transactions on your credit card:

  • Keep track of your spending
  • Set Up Alerts
  • Increase Your Credit Limit
  • Pay Your Balance Frequently
  • Opt-Out of Over-Limit Transactions

So, these were the insights into overdrafting your credit card. Now that you know all the merits and demerits of overdrafting a credit card, make sure to use it wisely.