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Why you should avoid credit card debt?

Credit card can be a wonderful thing. It can help you manage your cashflows, get some attractive deals and reward you with their loyalty program.

 Yet, credit cards don't come without its share of problems. And most of these problems are not about credit cards, but human behaviour. If not managed properly, they can soon lead you into a downward financial spiral which entails a never ending series of interest payments, balance transfers, bad credit rating, mental stress and more. So, it is important to handle credit cards with care and avoid credit card debt like plague.

 Here are some reasons you should avoid credit card debt.

  • Interest rates are really high - It can be as high as 4 percent per month (which comes to 48 percent per annum). And this is charged on the entire bill amount and not just the balance amount after you have paid it off partially. If not controlled, you can see yourself in a quicksand of interest payments. This can have a disastrous effect on your financial plans (if any, considering that you have landed into a credit card debt!)
  • Not paying your credit card bill on time can dent your CIBIL score (or equivalent credit rating score in your country) and this can make you difficult to apply for loan (home loan, business loan, car loan etc.) in future or get not so favorable terms if you take the loan.
  • Failure to pay your credit card bill on time is usually symptomatic of a deeper malaise - That of inability to control your finances. So, if you are unable to pay your credit card bill because your income doesn't match your expenses, this is unlikely to change unless your income increases your expenses decreases. And getting out of such lifestyle traps can often be difficult.
In addition to the above, getting into a spiral of credit card debt can have an adverse affect on your health, thanks stress that comes complimentary with credit card bills. This can severely impact your flexibility in life as you'll need to somehow keep servicing your credit card debt.
So, how can you avoid getting into credit card debt trap. Here are few tips.
  • First and foremost, use credit cards only if you have some control over your expense and can avoid impulse buying to an extent. Else, debit card or good old cash should be good.
  • Pay your credit card bill in full and on time. Always. Schedule the payments if you think you may forget making credit card payment.
  • Use credit card only for the purchases you could have made anyway with cash. So, if you can't buy that swanky new DSLR camera with cash, avoid buying it on credit too. 
  • Avoid exhausting your credit limit. Your credit limit is usually dependent on your spending capacity, and that you are close to it may be indicative of you biting more than what you can chew.  
  • Keep a track of your purchases and avoid surprises when you see the bill. 

Credit card usage can be a double edged sword. If you use it judiciously, it can be a good servant. If not, it can be an awful master.

__

 You can also read this on BeingFinWise

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