In the earlier discussion, we have discussed the benefits of credit card and explained the advantages of having credit card. But you look at credit card benefits and do not see credit card traps, you may fall into credit card traps. But nearly 80% credit card holders fall into the credit card trap. Credit Score, bonus points , cash back , 30- 60 days no interest all are fine. But have you ever thought no interest for 30 – 60 days(most of the credit card), why bank gives interest free loan to you in form of credit card? How bank earns if interest free loan offered?. Banks and credit card issuer are smarter than you. They know that you will fall into credit card trap.
80% credit card holders fall into credit card trap. You may be one among them.
If you miss to pay the credit card payment on time within the payment cycle ends, the interest calculated between 38 – 42 % annually. You could not find any investment instrument with 42 % annual profit. But after the payment cycle ends, 42% interest calculated on credit card due amount plus late payment fees plus financial charges. Banks and credit card are smarter than you. Credit card charges 42 % interest annually on credit card dues.
Banks are smart than you. Bank knows you will be caught in trap and collect 42% interest annually.
People assumes credit card limit as their income. They use credit cards apart from spending their salary. People mindset is credit card offers money to spend apart from their salary. This mindset should be changed. Because credit card is debt and it should be paid with interest. Credit card collapse the personal finance planning. Every month 25% of your income goes to payment of credit card bill. So we may not able to plan for investment and saving. Limit credit card usage and start investment planning.
credit card debt as a significant factor in consumer bankruptcies.
Another illusion is that credit card considered as prestigious property. Do not assume if you have more number of credit card means you are rich. It is not a good sign as it would collapse your finance planning completely .
Don’t consider credit card as prestigious property by mistake
With all the above credit card trap, Indian mindset is credit card is service provided by the financial institutions. It is kind of short term loan offered by credit card. Do you think bank customer care calls you more than 50 times and force you get credit card to offer service?
Saving account interest 6.75 p.a, credit card interest is between 30 – 42% annually with popular credit card citibank credit card, hsbc credit card and master card. Do you feel credit card is a service?
Saving account interest 6.75 p.a, credit card interest 42%. Please don’t say it is service offered by bank
The final note on credit card trap is Financial stress. You have to pay the credit card bill on bill date, otherwise it would be stress. Financial stress would affect your productivity and your relationship. Careful with Credit Card.
Financial stress would affect your productivity and your relationship.
Most of the credit card holder pay only minimum dues. Monthly minimum due of credit card is calculated based on your usage and credit card limit. Do not think pay minimum due and remaining credit amount in credit card would be interest-free. No. It is wrong. We have to pay 3% monthly interest for remaining amount.
Minimum balance is a trick, pure trick to make sure you pay less and get into debt trap. Be aware.
These are credit cards traps. 75% credit card holders fall into credit card trap. But do not consider credit card is trap, it is trap only if we do not manage credit card properly. We would discuss how to use credit card properly, how to avoid credit card traps in upcoming sections. Happy Learning:)