Today I wish to discuss one interesting aspect of our Finance Life, and that is Credit Card. One fine morning I got call from one of the banks, offering the Credit Card. I asked them about the charges/fees and they said that Credit Card is totally free. It means they offered me the credit of 45 days for free. So in this case the customer can simply use credit, and pay at the billing cycle. How easy. Not only that, there were also offers and discounts for the purchases made through the credit card. How interesting! It sounds that the banks offering the credit cards are angels.
Yes apparently it may sound so, but I would like to bring the flip side of using Credit Card, to your notice. Following are the reasons you must avoid the Using Credit Cards.
You must know for what Credit should be availed:
My basic question, for what exactly one should avail credit. Let me discuss this very important aspect of finance. As any Prudent Person I believe that principally credit must be availed only in three circumstances. One is to do business. Of course to do business you may not have adequate owned funds, in that case you can have credit availed for yourself. Second is to build, or buy asset. Yes, generally any asset price is huge and you will not have the owned funds to buy that. Home loan is best example of it. Third In case of contingency, if you don’t have adequate funds you can borrow. (Of course this situation may arise only due to lack of Financial Planning)
Believe me if you borrow money for any reason other than these, three be sure that you are on wrong path of your Finance Life. And by using credit card you exactly do that only. Because in Credit Card you borrow money for the purpose other than mentioned here, i.e. you borrow for expenditure, which is totally nonsense.
You tend to buy the things which you don’t need but what you want:
Credit Cards often offer many discounts and offers on the purchases made through the credit cards. This is very tempting, and it controls the mind. Many times the person makes the purchases just because there is some offer on credit card on the purchase. It makes the person to do unplanned and unnecessary purchases. Just because the credit card in the pocket, people make the purchases, which they would not had purchased otherwise.
Too many hidden charges, and heavy interest and penalties:
The most important thing everyone must remember is the charges of Credit Card. There are so many fees, interest and late payment charges. Many banks offer free card, it means no annual fees. But in many cases banks trick that these charges only waived for the first year. So after second year and on wards they charge for that. Secondly in case of late payment banks charge interest. This rate is generally 25% to 30% per annum. There are also charges if you exceed the limit of the credit limit of the card. If you withdraw the money from ATM through credit card then also bank charges some fees. In addition to that for every charge, interest there is service tax, which is also the burden on the holder of the card. Please think logically, if nothing is free in this world, why the banks would offer you free credit. Even though they offer the free card without any annual charge, they can easily make money with all these charges, fees, interest and penalties.
Too many examples of debt trapped people due to Credit Card:
I believe Finance discipline is the integral part of every person. And use of credit card is definitely the barrier of disciplined finance life. Credit card has proved to be the debt trap for so many people. So many people have suffered due to use of credit card. The biggest evil of the credit card is, it make you spend impulsively and make you dependent. And definitely there comes the time during the tenure of the use of card when the person makes some mistake of not paying in time or over withdrawal. And this is the point when the individual starts entering into the debt slowly. In fact banks are waiting for you only to make mistake, and as and when the debt starts increasing beyond the reach of the customer they smartly offer to convert that into EMI. Interestingly even though this happens, people continue using the credit card exactly with the same mistakes, because they are programmed to use it. And even though bank charges exorbitantly, you cannot dispute it because your CIBIL record gets spoiled and it becomes difficult to get any loan in future.
Friends, believe me you never require the credit card. So many people argue that credit card is biggest facility in case of contingency, as one can raise the money quickly. But what if you have already exceeded the credit card limit at the time of contingency. In fact for any contingency you should have some funds in the liquid assets as a part of financial planning which is continues process. And I repeat credit card can never be the part of the good financial planning.
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