Thanks to the Internet, you can get hopelessly in debtwithout ever leaving your house, courtesy your Credit card. A credit card hasbecome an indispensable part of our lives, with its ease of use and convenientpay-back options. The discounts, offers and deals that a credit card offers areunmatched by any other financial product and spell a bonanza for the wise-user.Credit cards can be a convenient way to manage your finances but they can alsobe expensive and risky. They can become debt-traps if not used correctly or ifyou spend more than you can repay when the bill comes around. Your goal shouldbe to pay off your credit card bills in full at the end of each month/cycle andset aside money towards your emergency savings/fund.
Credit cards are like sins, you enjoy now and pay later andthe biggest con of a credit card is the minimum due amount that is displayed atthe top of a bill statement. A number of credit card holders are deceived intothinking the minimum amount is the total due they are obliged to pay, when infact it is the least amount that the bank expects you to pay to continuereceiving credit facilities. This results in customers assuming their bill islow and spending even more, accruing interest on their outstanding, which couldbuild up to a large and unmanageable sum over time.
“There are no free lunches” – a famous saying in thecorporate world and the same is applicable to credit cards as well. Creditcards have a variety of charges/fees such as joining fee, late payment fee,annual fee, renewal and processing fees. Since your bank balance stays thesame, it gets all the more tempting to put all your purchases on your card,making you unaware of how much you owe. This could lead to you overspending andowing more than you can pay back, beginning the cycle of debt and high interestrates on your future payments. Have you ever heard someone say that he’s becomerich by using a credit card or from an airline mile, I am sure none has ever.Further more, missed credit card repayments and ongoing debts are recorded onyour credit file and can impact your chances of getting a loan down the track.Further more, there are a range of fraud schemes that target credit cards.While you can be compensated for illegal transactions on your account, dealingwith credit card fraud can still be a time-consuming and stressful experience.Keeping in mind all the above reasons, using credit card needs utmost cautionand planning. But to be financially disciplined and stable, it is advisable touse debit card instead, for a simple reason that it takes funds directly fromthe money that you have in your bank account – acting much like a cheque, justfaster. With a debit card, you don’t have to carry cash or cheques and it isvery convenient to shop at a variety of places including filling stations,grocery stores, restaurants and retail outlets etc. They provide instant accessto your money and are accepted worldwide.
Don’t go broke trying to look rich, act your wage and tobring stability in financials, one not only needs to make more money, but alsoneeds to avoid losses. The payment fee, exorbitant charges for credit card,processing fee etc are nothing but unnecessary leakage of your hard earnedmoney. Hence to avoid these, one should stop or lessen the use of credit cards.Transactions in cash/debit cards make you sense the cash spent and hence helpin planning your finances accordingly. This would also reduce the tendency ofimpulsive shopping and unnecessary spending in daily life. In case you fail touse your credit cards judiciously, it would be like treating each day as yourlast and one day you will be right.
(Ifthikar Bashir is a freelance Financial Advisor)