Credit cards have taken up the position of paper cash in the modern era. These plastic cards have entirely revamped the manner of purchase and sales. After the last year’s ‘demonetisation’ move announced by the Indian government, the number of credit card sales, as well as the usage, have emerged immensely. The Reserve Bank of India states reports that the people in India have increased their dependency on credit cards to overcome debt issues.
Revolving credit
The customers in their interest-free period are allowed to use the credit card only till the minimum amount due. The remaining amount, if any, is transferred to the next month. However, the customers have to start paying interests on this sum from the very same month. The amount usually accumulating at the year-end is around 35%. Amount paid later by the individuals attracts interests on the dues. Experts believe that payments though seem to be easier, it can lead users fall to debt traps ultimately impacting their financial standing and the credit score.
Multiple equated monthly instalments (EMIs)
People who desire to buy luxury goods and services have the option of EMIs to fulfil their wishes. Provided by numerous banks, the individuals can repay the amount through instalments every month. The interest charges on these payments are lesser than the rates applicable to outstanding credit amounts. Though the interest rates vary for each of the banks, it is usually 13 – 18%. Though this is surely a feasible option for customers, they shouldn’t rely on the same entirely. The card holders should be aware of the processing fee and different charges applicable to avoid getting into a debt trap.
Cash withdrawal
The lenders and the banks allow the customers to withdraw money from any ATM affiliated with them. Though one can easily withdraw and procure money, the charges applicable are usually very high. The interest rates are generally equivalent to the revolving credit facility. Unless the dues are cleared, cash withdrawal results in payment of substantial rates of interest.
Credit score
This is a 3-digit number showing an individual’s credit worthiness. Any compromise on the same shall result in grave impacts. If one fails to pay the due amount on time, there is certainly a negative impact on the credit score. A decent credit score is essential to avail other credit cards or get loans.
Reckless spending
Though credit cards have become a part of our daily lives, any misuse of the same can cost huge. These cards come with numerous offers on fuel, dining, shopping and much more. A judicious use of the cards enhances the customer’s credit report. One should still give priority to financial discipline over the offers provided by the bank. If the case is not so, the customer can get trapped in a terrifying credit cycle finding it troublesome to come out of the debt trap. Hence, as long as people follow all the above tips while using his card, they can enjoy all the great benefits.
