New Delhi. The use of credit cards in the country has increased rapidly in the last few years. Features like online shopping, easy EMIs, cashback, reward points and tap-and-pay have made it a part of everyday life of common people. But while these cards provide convenience and freedom of shopping, due to misuse many people also get trapped in the trap of debt. The big question is whether credit cards are a convenience or a headache for us? The answer is clear that it completely depends on your method of use.
Why do you think credit cards are a debt trap?
The biggest weakness of credit card is its very high interest. If a user does not pay the entire bill on time, an annual interest of up to 30-42 percent may be charged. This much interest is many times more than any normal loan. Even small outstanding amounts can increase manifold in a few months.
The second problem is the illusion of minimum payment. Many people think that if they just pay the ‘minimum due’ then the loan will go away or interest will not be charged, whereas the reality is the opposite. Paying the minimum amount only keeps the card active, but huge interest keeps getting added on the remaining balance, which can double-triple the debt within months. The third reason is uncontrolled expenditure. While using the card, money is not deducted from your account immediately, hence people often spend more than necessary. Especially when features like offers, rewards and tap-and-pay make every purchase easier.
How do people get stuck in credit card problems?
1. Revolving Credit
If the bill is not paid in full each month, the outstanding amount continues to grow and interest accrues. This is the first step into the debt trap.
2. Multiple Cards and Zero Tracking
Many people keep 3-4 cards, but do not keep records of how much was spent on which card and when the bill was to be paid. Due to this, late payment, penalty and interest keep increasing continuously.
3. Cash withdrawal mistake
Withdrawal of money from ATM using credit card is the most expensive mistake. There are heavy charges on this and the interest becomes applicable from the same day.
4. Lack of understanding of credit
Many users are not aware of things like annual interest, grace period, billing cycle etc. As a result, they are unable to use the card wisely.
How to escape from the debt trap?
1. Pay your entire bill on time every month
This is the golden rule of credit card usage. If you pay 100% of your bills on time, you will always be protected from interest and penalties. This also strengthens your credit score.
2. Avoid minimum payment
Minimum amount is just a trap. Due to this the debt increases and does not end for months. Always try to repay the entire amount shown in the statement.
3. Do not consider credit limit as a limit on spending
If your card limit is Rs 1 lakh, it does not mean that you can spend Rs 1 lakh. Just think of it as an emergency backup. Ideally, do not spend more than 30-40% of the total credit limit.
4. Get into the habit of tracking expenses
Every bank’s app has an expense tracking feature. Use it to see where and how much your money is going. This automatically reduces unnecessary expenses.
5. Do not increase expenses in pursuit of rewards
Rewards and cashback are beneficial only if you continue to spend the same even if you do not get the reward. Spending unnecessarily just for points is a loss-making deal.
Credit cards are both a convenience and a headache. Make payments on time, track expenses and do not misuse the limit, so this is a great tool for savings, security and increasing credit score. But wrong planning and delayed payments turn them into costly debt traps. Therefore, only understanding, discipline and awareness make credit cards a convenience, not a headache.
