Skip to main content

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

Comments

Post a Comment

Shop @ Amazon

Popular posts from this blog

An area of darkness ?

The title of this post finds its origins in a novel with simlar name written by VS Naipaul. Set in India, some 40 years ago or so, this is a kind of travelogue of author's brief stay in India where he found it to be full of superstitions, ignorance and darkness! Many decades and many MNCs and malls later, few parts of India seemed to have chucked off that tag, but there are many places that haven't and continue to remain shrouded in ignorance. Move few hours away from a city, travel in a second class train compartment or a dilapidated state transport bus and you get to see the dark underbelly of India Shining. As one of the characters in the movie Rang De Basanti says "Yahan zinda rehne ki jung mein logo ki zindagiyan nikal jaati hai" . So true it seems! My day today was spent being kind of lost in similar thoughts. To start with, I when I boarded the ST bus, a woman was wailing. She may be in her 20s or something, but she was crying in some peculiar musical tone. At
13 comments
Read more

All for a Car

"Boss, I want a car" "What? "Yes. I want a car" The boss thought for a moment. Ravi was asking for a car. Maybe he needed one. He could give him one for an hour or so. The boss was the owner of the agency, which dealt in dealing with distribution of FMCG products of a big company and was a person who had a soft corner for his employees, something which is rare in such type of work. Ravi was a small time computer operator earning Rs 5000 a month at the agency. The job involved sitting in front of a computer in an air conditioned room and punching orders and preparing the bills on the company software. But the demand for a car was a bit shocking. No employee ever asked him for a car. "Why do you need a car?" "Boss. I am getting married" "Good. Congratulations" "Thank you boss." "So do you ..." "Sir, I have told my to be father in law that I earn 35000 a month and have my own car. I'll be engaged soon. He
6 comments
Read more

Cycle

After a failed attempt at jogging, I roamed about aimlessly when an idea struck me to have a ride in a cycle, couple of which is lying in the “recreational area”. I was longing since long to ride a cycle sans motor. There was no particular reason for this feeling; it was that just I wanted to have a ride. The 2-3 km ride was a tiring experience, especially for one who is having this after a long time; but I was gleeing all along. As an infant, I loved going about in a tricycle. Then I became too big for it and got a cycle. After several attempts and many falls, I mastered the art. I used to flaunt it in front of my friends, who flaunted theirs. As I entered teens, the bicycle seemed smaller; so I got a bigger cycle. As years progressed, I learnt to ride a 2 wheeler. Now I started to find the bicycle too childish for my tastes. I tried to reason out why I should get a 2-wheeler to go to a particular place. Sometimes I succeeded to get it, and sometimes I didn’t and had to go around in
5 comments
Read more

Assured returns from stock markets?

Stocks (and hence mutual funds) are often sold as something that give "assured" long term returns over a period of time. While this has been true for most of the times, and all time if we consider a long enough time horizon in India's recent history but is this always true? Can it be possible that stock markets can give lesser, say 10% returns over next 10 years? Or 5 percent annual returns? Or, taking inspiration from Nicholas Taleb, a black swan event happens and your end up barely recovering 80 percent of your principal amount (i.e. 20 percent loss) -   Theoretically yes.  Hopefully no.  I am not a predictor of future, nor are thousands others who claim to have more than 1000% percent surety of future events. So, if you are contemplating taking a personal loan @ 12% for some financial need and want to be invested in a mutual fund for "assured" 12 / 15/ 18/ 25 percent returns, maybe you need to rethink. If you want to borrow money @ 12% just to inv
4 comments
Read more

Just aise hi ...

That lady was probably in her early 30s, seemed like a resident of a well off locality, probably wife of some well off businessman in the town. (SEC A type, in marketing jargon!) . She seemed to be coming after a shopping spree, although calling it a 'spree' would be an exaggeration, as all he had was a small bag. It seemed that she could not get a car that day and hence decided to take a rickshaw to her way back home. "Ae rickshaw" , she blurted After some negotiations, the elderly rickshaw-waalah obliged, and she kept calling that person as "rickshaw" ! I was just reminded of a sequence from movie Lage Raho Munnabhai where Gandhiji says - "If you want to judge a person, observe how he behaves with a person having a lower standing than him" !!! I smiled, nodded my head once and went ahead !
4 comments
Read more