Credit Card: The freedom to reach the credit limit increases the credit risk of the card holder. This is compensated by charging a high interest rate.
Credit Card: Despite many challenges and risks, credit card has become a popular financial tool today. We have become so comfortable that we can’t stop ourselves from making new purchases when it comes to options like payback offered by credit card companies. Credit cards not only make it possible for you to utilize extra funds but also reward points, due to which credit cards have become an essential part of our lives today.
While it is true that the deals and discounts offered by credit card companies can tempt you a lot, but be careful if you end up delaying the repayment.
According to Renu Maheshwari of Finscolarge, “Credit card is a good option if you use it only as a convenience. This is plastic money and you don’t have to carry it around like cash. If you use a credit card, make sure you clear your dues on time. However, you should not use a credit card to take a loan. Credit card loans are the worst and have very high interest rates.
The freedom of credit card holders to reach the credit limit given to them increases the credit risk of the card holder. This is usually compensated by charging a higher interest rate. But its benefits entice youngsters to use credit cards. However, irresponsible use of credit cards can easily land you in a debt trap. So how to avoid it?
Avoid Expenses You Can’t Pay
This is the thumb rule that should be followed for every small expenditure and especially in the case of credit cards.
Shweta Jain, Financial Planner & Founder, Investography, says, “Spending on a credit card can be very easy. So don’t fall into this trap of spending. Spend within your budget and pay the full amount on time. Do not take into account future income and expenses. Spend only what you have, even if it is a credit card. ”
Do not withdraw cash from your credit card
Never withdraw cash from your credit card, although it is an option that the bank offers. Its interest rate is very high. The reason behind this is not limited to making profit only. This is due to the way the credit is designed and the risks associated with it.
Sahil Arora, Director, Paisabazaar.com said, “Due to the unsecured nature of credit cards, issuers charge high interest due to high credit risk. However, another reason for this is the sanctioned credit line as a credit card limit. Unlike personal loans, credit card users do not need to submit an application to avail an instant loan. All they have to do is swipe their credit card or use it online and pay the transaction as per their repayment capacity.”
Do not pay the minimum amount due
By doing this, you can increase the difficulty for yourself. Don’t even look at the minimum amount due.
According to Jain, “Whatever you have spent and pay it in full. Otherwise, interest, penalty will be added on that amount. And in a few months this amount will become huge if it is not repaid soon. If ignored, the matter can get out of hand. I know a person who had to sell his car after 2 years of paying the minimum amount because he thought that was what he had to pay.”
Do not take more than one card
Managing multiple cards can be difficult. Make sure you take one or maximum two cards, track your expenses on them and settle their dues on time. If you are out of control over the expenses and fail to clear the dues on the date, then the credit card is not for you.
don’t delay payment
Don’t miss your payment dates. If this happens, interest will also be charged and penalty will also be there. Big amount can increase your problems.
Mrin Agarwal, Financial Planner and Founder, Finsafe India said, “Pay credit card bills on time as the interest cost is 36-42% per annum and your credit score is also affected if the bill is not paid on time. Also, once you get caught in the trap of revolving payments, it becomes difficult to get out.”
Don’t keep your credit card details everywhere
Always check all charges on your card. Do not use others’ computers or phones to spend with your credit card and avoid saving your card number anywhere. Don’t sign in or spend on unsafe sites.
Jain advised, “Use your card responsibly and build a good credit history. If used poorly, you will get into debt and your credit score will also suffer.
Agarwal suggests to always check the terms and conditions on the offer before signing up.
