In my earlier blog post I spoke about the advantages of owning a credit card, but every good thing comes with a rider, a condition which if not fulfilled can cause good scale of dent in your financial plan. There fore being alert and cautious in using the credit card is always advisable.
PERILSS OF USING THE CREDIT CARD:
- Over Spending Trap: With easy availability of purchasing power within a person’s reach, he/she may invariably fall in the over spending trap, or to say they indulge in emotional purchases. They may certainly do the needful purchases but at the same time spend money on the thing which they don’t require right at that time anticipating that they might require in future. This idea of incurring future expenses now is unreasonable because may be in future due to certain changes in situation you may not require that thing at all. Overspending is the single largest negative factor when you have a credit card. The habit of over spending should be avoided at all cost.
- Discount Offer Trap: The second villain in this race is discount offers. People go out for shopping, they fall in a trap of discounts and other offers which they think will benefit them and end up buying more than what their original plan was. That extra money a person spent which could have been easily avoided can derail the financial plans, this is emotional spending. One should be very clear in buying. In-fact before going out for shopping make your expenditure list so that you stick on to your plan and purchase only those things which you really want to buy.Remember using your card is a life long process, if each time you fall prey to discount offers you will not be able to build strong wealth in future.
- High Interest Rates: Your credit card payment obligation is the most important aspect to complete the transaction, if you do not honor your payments fully and if the payments are not in time, then payment interest rates are too high, they vary between 36% per annum to 42% per annum or there about. Hence keeping in mind timely payment is very important.
- Reduction of Credit Limit: If your payments are not in time and if invariably you make part payments, this will dent your credit score, resulting in reduction of your credit limits or may be eventually stopping your credit card.
- Hidden Costs Ignorance: Credit cards should be treated with due care, because even a little negligence or ignorance will result in number of known costs and hidden cost that will get bombarded on you, these costs are interest charges, late payment fees, taxes, joining fees, renewal fees, processing fees when you avail an EMI option or Loans etc. Then cheque bounce or payment bounce charges and penalties. These are frustrating things which can be avoided when your payments are in time.
Remember each time you make a purchase you owe to the credit card bank an equal amount of purchase you made, this is a payment facility bestowed to you by the credit card bank. Hence Prudence demand that you should honor your payments in time so that when ever you see your monthly statement you feel good and energetic and do not feel frustrated and low in spirit and action.
Hello! I am Ramesh P. Raheja, I am the founder of strongwealth.in. For last more than 40 year I have been in profession of free lance accounting. I want to share my experiences and sincerely help people achieve their goals faster in their lives. The views present in this blog are only for reference and guidance purpose. The reader should always take professional advice from their consultants/tax advisor/financial planner/insurance etc. as the case may be.
