Credit Cards : A double side Edged Sword
Credit cards have brought revolutionary changes in our way of thinking for spending. On one hand, its a financial tool due to the convenience of its use, but, on the other hand, it endangers you to fell in a trap of spending without foresight.
It can only be seen as a tool to extend your payments, strictly, till the credit period available on the credit card & NOT BEYOND THAT !
So before you go for a credit card, you must ask yourself few questions, such as:
1. Are you capable of having a credit card ?
Credit card is like a sharp edged sword, it can protect you from the cash flow problems. However, if not used properly, you may injure yourself with it. If you follow sound financial practices in managing your finances, then only you should opt for a credit card. You must be capable of enjoying the benefits of a credit card without falling in its interest trap.
2. Have you opted for the right card?
- Check the cards rate of interest. It should be reasonable as per industry standards. Stay away from the zero per cent cards unless you know for sure that you can make your payments on time.
- Always read the fine print.
- Try and restrict your credit usage to either only emergencies or for fixed, recurring expenses (groceries, petrol), for which you are sure to get the funds before the due date for the payment of credit card.
- And, finally, when you do get your card, make sure to pay your balance in full every month, even if you feel to do a rounding off, do it upwards or stick as close to this effort as possible.
3. Have you analyze your dependency on your card ?
Analyze your dependency on the credit card. You must not be fully dependent on your credit card & must not use the fullest of your credit limit, as in case of any unforeseen & unplanned expenditure, you can easily fall short of the complete payment, forcing yourself into the interest trap of the credit card.
4. Do you follow an unplanned way for purchases ?
If you follow an impulsive & unplanned approach while making purchases through your credit card, it can lead you to the trap. Often, without an onsite visibility of cash flow, one tends to be tentative in its approach, while spending. This again takes the balance against you as you will realize only on the receipt of the credit card bill that you have spent more than you can repay within the allowed credit period. Avoid this approach, purchase only what you need.
5. Are you in a habit of paying the minimum amount due or paying late?
If you are following this habit, you are bound to put yourself into financial crisis. Remember, the minimum amount due is simply the interest amount due on the principal. If you only pay the minimum you will never pay off the card, as you are only paying the interest part & the principal will remain the same. Try to pay the complete due amount at least 3-5 days before the due date of payment. Even a single day late will cause heavy late payment charges & also high interest charges in the next bill. Remember, interest is charged from the date of actual transaction & NOT, from the due date of payment.
6. Finally, what if, you have actually plunged into a credit card debt trap ?
Give a serious thinking at your finances and find out how much you can practically afford to pay each month.
Categorize your expenses by priority: need v/s want.
Try to find a credit card with low interest & apply for the same. Transfer the debt from the card with the high interest to the new card. Then, try to pay maximum amount per month.
If you find that you have some FDs or saving instruments with a lesser yield (definitely an these cant give more than what a credit card is charging), try to redeem those to pay-off your credit card balance. In this way you can save a good amount of interest, which otherwise have to be paid by you on your credit card debt.
Once your payments are made, discipline yourself from the learnt lesson. The main motto should be to use credit card wisely & to stay away from the crippling debt.