Say No to credit cards. Credit cards are becoming increasingly popular as online payment tools as credit card payments don’t require us to pay the money at the same time. It has a billing cycle of about 30 days and the due date to make payment lasts till 20 days after the end of the billing cycle. The monthly limit of credit cards is determined on the basis of one’s salary or annual income. Credit card has nothing to do with one’s bank account balance. On the other hand, the debit card allows one to spend only out of the amount which is deposited in his or her bank account. And this is why credit cards are gaining more popularity over debit cards especially among the youth who tend to spend more than they earn.
It feels very tempting to use credit cards when we consider the fact that through credit cards, we can get an interest free loan for 50 days. But using a credit card is not a child’s play. There are various risks involved in using a credit card. One of the main risks is you may develop certain habits that have the potential to ruin your financial game!
Reasons not to use credit cards
1. Using credit cards increases wastefulness
By using credit cards, we become extravagant since we do not have to make the payment out of our pocket while shopping. When we shop with a credit card in our hand, we really fail to make out if the commodities we are purchasing are actually affordable or not. At that time, we also tend to purchase goods which are not even needed. This results in overspending and thus can create a huge debt burden in the long run if one fails to pay the amount on time.
We cannot deny that credit cards are extremely advantageous in case of an emergency as it avoids the need of taking a loan from someone else. But it is largely resulting in making people spendthrift.
2. Incurrence of hidden charges while using credit cards
There are many hidden charges involved in using a credit card which include the following:
- Annual maintenance charges (along with GST )
- Charges for every transaction done using credit cards
- Fee for withdrawing cash using credit cards
- Late payment fee
- Over limit charges
- Charges on transferring money from credit card to bank account.
There are lifetime free credit cards which involve no annual maintenance charges but in case of other credit cards, yearly charges are imposed on the user even if no transactions are made using the card.
Sometimes, the credit card companies put before some offers of upgradation of the card from silver to gold or from gold to platinum without disclosing the fact that an upgraded card has some hidden costs such as the increased annual charges. Thus, in case a person is not adequately aware or does not use the card much, then using a credit card can cost the person much more than the worth of the transactions that he / she would have made using the card.
3. Manoeuvres used by the credit card companies
Initially, the credit card providers show their customers what they will get and do not show what they will have to pay if they start using a credit card. It becomes evident when we see that on the agreement papers, some conditions are written in a smaller font size. These companies want the users to spend more and more so that they fall prey to the trap of the minimum amount payment, hidden charges, different kinds of offers and high interest rates. This implies an increase in the income of the banks.
Many people have the misunderstanding that there is an interest rate of only 3 – 4 % on delay in payments but this is not the whole truth. This interest rate keeps on increasing and is as high as up to 40 % per annum which is of course an exorbitant amount.
Also, the banks intentionally do not contact the credit card users through calls or messages regarding the approaching deadline to make the payments as they want their customers to be late in making payments so that they can make a handsome amount of money through the high interest rates.
4. High interest rates for not making timely payments
The credit card companies charge a very high rate of interest called APR (Annual Percentage rate). The APR is the major source of income for the banks. This interest rate is much higher than any other loan such as personal loan, home loan, education loan or gold loan.
If the credit card users get late in paying the monthly bill, then their credit scores get lowered and lower credit scores imply higher interest rates every time. Apart from the regular interest rate, there are interest charges on cash withdrawal also. Thus, not paying the amount before the due date can lead to the complex problem of debt trap for the user.
Consequently, this debt trap lowers the credit score of the user and because of this backbreaking liability, it becomes difficult for the person to get a loan in future. Hence, one should always avoid using credit cards unless it becomes a compulsion.
5. Using credit cards increases proneness to frauds
One should be very careful while making online payments through credit cards. At times, there can be cloning of cards which can lead to serious fraudulent acts. There are some international websites which require CVV numbers for completing the transactions instead of using an OTP or password. In such situations, loss can be prevented by immediately blocking the credit card and informing the bank about the fraud.
In a bid to improve the standard of living, people have started spending more than they earn and payment through credit cards appears to be the most viable way to them. This extravagant approach of people leads them into the vicious circle of debt. Also, people tend to get attracted towards the tactical schemes offered by the credit card companies like cashback offers, discounts, rewards, etc. which make them overspend. Hence, it is strongly recommended that one should take a credit card if and only if he / she is well-disciplined.
Now the question is “how to stop yourself from using your credit card?”