We all must have come across phrases like credit cards are pocket diggers, they promote overspending, they are an invitation to debt traps, etc., right? But have you ever wondered the reason behind all these comments? It's unfair that despite being an excellent financial instrument offering the twin benefits of instant credit and money-saving through cash backs, discounts, reward points, etc., credit cards are still demonised by many.?
Eager to know the reasons behind the tons of biased opinions or hearsay putting credit cards into a bad light? Read on to know the common mistakes that land credit card users into a debt trap.
The secret to success for those who manage to handle their credit cards smartly, is remaining disciplined towards both usage and repayment, besides controlling the urge to make impulsive spends. More often than not, the enticing offers and discounts offered by credit card issuers and partner merchants are the perfect bait for credit card users who lack financial discipline, as such people are likely to give in to the urge of overspending just for the sake of offers. Eventually, such urges become the root cause of many people failing to repay their entire dues on time, and gradually falling into a debt trap.
Also read:?Worth Explains! Credit Card Is Not A Debt Trap, Here's How To Use It Correctly
The first thought that comes to many credit card users¡¯ minds on seeing their spiked up credit card bill, is to take the easy way out by paying the minimum amount due. Seeing the relatively tiny amount as minimum due (usually 5% of bill amount) looks much easier to pay than the huge total due, right? That's where we go wrong. What we fail to understand is that even if paying the minimum amount by the due date can saves you from the late payment fees, the hefty finance charges would still be levied on the entire unpaid amount. What's worse is, when you get habituated to paying the minimum amount due, that's exactly what the beginning of stepping into the vicious cycle of debt trap looks like.
Another blunder that harms your financial health is the habit of withdrawing cash from credit cards. Unaware or simply ignorant of the consequences, many credit card users tend to commit this blunder. What such users fail to realise is that cash withdrawals through credit cards attract not one but two charges. First in the form of cash advance fee on the withdrawn amount and second in the form of the hefty finance charges, which are enough to burn a deep hole into your pocket. Moreover, the finance charges are levied right from the day of making withdrawal till complete repayment.
The enticing EMI facility, especially the no cost EMI ones, have become an immensely popular feature of credit cards over the past years. While its fine to opt for the EMI facility, ignoring your repayment capacity is not okay. Amongst the various EMI tenures being offered, failure to choose the right tenure can pose difficulty in repaying the credit card bill. Not only are the EMIs added to the bill every month till the tenure exists, they are added to the minimum amount due as well. For instance, your credit card bill for a month is Rs 10,000, including Rs 3000 for the EMI. So, instead of your minimum due amount being around Rs 500 (5% of 10,000), it will be around Rs 3000 plus 5% of (10000-3000=7000), i.e Rs 3,000 plus 350=Rs 3350. So, whenever you jump towards EMI facility, remember to only choose the tenure whose corresponding EMI is comfortable to repay, without pushing you towards difficulty in bill repayment, and at worse a possible debt trap.
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