To begin with, I’ll try to keep this article short and precise and mind you some of the downsides of owning a credit card for yourself. First of all, we all know that Credit Cards are the most expensive form of debt that anyone can take for buying good which depreciates in value with time.
Banks typically charge interest rates in the ranges of 20% to 40% annually if you fail to pay back the total amount due on your Credit Card at the end of each billing cycle.
Often people take a credit card just by reading its benefits like 45 to 50 days interest-free period, airport lounge access, reward points, etc. Well, these can be both good and bad for you depending upon your usage pattern and credit behavior. If one uses it wisely, you can boost your credit score, get a loan at a lower interest rate, earn free rewards, etc but on the downsides, you will see people falling into a debt trap, destroying their Credit Score, paying hefty amount as interest to the banks and destroying their financial health.
The Trap of Credit Cards
Credit Card is dangerous for people who can’t control their impulsive buying intent. I have heard about those people who get emotional spikes if they don’t shop for a week or they have a tendency to put up things on EMI.
Eventually, as you keep piling up debt on your Credit Card from its irresponsible usage, the overall usage on it jumps, and if this utilization of Credit goes above 30%, your score starts to fall. Banks will think of you as a credit-hungry consumer and your CIBIL score will keep falling just by this single act of putting all your bills and purchases on a Credit Card.
Further, if you fail to pay back the total amount due at the end of the month, you will be paying interest at a rate of 36% to 40% on the remaining balance. As I said earlier, it’s the most expensive form of debt that one can borrow from the banks. Also, you need to pay 18% GST on the interest that will be levied by the bank. There will also be late payment charges which can range anywhere and are different for various banks.
Another trap is Minimum due which banks offer to consumers telling them to pay 5% of the total outstanding. Some people fall into this trap and the debt keeps on piling up more and more. Let’s assume you have Rs 100 due at the end of the month and the minimum due is Rs 5, if you pay the minimum due, you won’t need to pay late charges but the remaining amount next month will become back to Rs 100 including the interest and 18% GST.
Hence, to sum up, use debt wisely. It’s like fire which can warm your hands in winter or can even burn you up if used carelessly. Control your emotions for impulsive buying and trust me you will be good. Don’t take things on EMI’s. Keep saving money and build an excellent credit score by paying full credit card bills at end of each month.