Undisciplined use of credit cards leads to self-inflicted wounds. Credit cards simply work as mini loans and your financial mistakes push you into the vicious cycle of credit debts. Read this his ArthaYantra post to learn about situations where credit card usage should be avoided.
Say No To Cash Withdrawal With Credit Card: Credit card for cash withdrawal and fund equity purchases may turn costly, as the rate of interest on cash advances are extremely high. A flat transaction charge is levied on the amount withdrawn, which could range between 2.5% and 3.5%. Moreover, the interest rate is applied from the moment you withdraw.
Unlike the debit card, cash withdrawal from a credit card is complicated. For example, if you are withdrawing INR 100 from a debit card, you are taking the same amount with you. This is your money that you already have in your account and so you do not pay anything extra. But, when you withdraw INR 100 from your credit card, you are taking only INR 75 at the end of the first month after paying for interest rate and the transaction charge. Simply because the amount that you have drawn is the sum borrowed from the lender.
Avoid Using Credit Cards To Fund Daily Expenses: With too many eCommerce websites and online grocery stores, many people tend to use credit cards to make day to day purchases. Occasional usage may not harm but with regular usage of credit card, you may end up overspending. Avoid crossing your monthly budget, by paying with debit cards. In simple, buy your essentials by only using dedicated amount, within the budget.
Never Ever Use Credit Cards For Trading Or Gambling: Trading or gambling is the last thing one can do with the credit card. If you assume that you will get handsome returns and can repay before the due date, you may not be always right. In case your investment value decrease, before your payment date, you would end up selling your holdings and assets for rates lower than the purchased price. Eventually, you would remain with the credit balance far higher than the amount you actually used. Avoid credit cards for speculations and gambling.
Using Credit Card For An Emergency: Your credit card may be your only source of instant money during an emergency. Imagine, if your car broke down away from home and you need to pay for the repair or rent a car, you will find it handy to use the card. You may use it for emergencies at hospitals till your insurance claims are released. But to avoid credit trap, pay off the complete balance amount before the due date, as the interest rates levied on late payment increases with time.
In conclusion, avoid using credit cards for unwanted purchases. In today’s scenario where exposure to credit card usage is pretty high, practicing discretion on spending choices when using them is necessary. Try carrying only debit cards and cash for the day to day transactions. This would help keep your budget in good control.
Value your money and channelize your expenses properly. To understand your spending pattern, get your expenses, liabilities, and assets analyzed by our experts and increase your annual income by 21%.