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USAGE OF CREDIT CARDS - GOOD OR BAD


The use of "Credit Cards" is very similar to having romantic  relationships. If you know how to handle it, you will be happy. If not,  you are screwed.

How?


Read on.

With the rise of plastic money and the non satiation with  consumerism, CC have become one of the indispensable tools  that the youths are using these days. Strictly speaking, it is a loan  that you can have without any collateral and if used wisely, without  having to pay a single rupee in the interests. The idea behind CC is very simple. Your bank gives a card which is nothing but a way  to access a pre defined amount every cycle. You can use the card for  making any kind of payment: be it purchases on web sites or dining in a  restaurant. It helps you buy things even when you do not have money to  spend. It is like having a loan for very short period, called the CC cycle without having to pay any interest. If you are able to pay  the amount due on it within the credit period mentioned, it’s free  money.

The last line above. That’s the most important thing to take care of.
If you are using a CC make sure you pay all your dues the  due date. If you fail to do so, be ready to pay more than 36% annual  charges on your company. And if you fail to pay the minimum amount due,  which generally ranges from 5% to 10% of the total amount due, you will  be slapped with more than 500 rupees, not including the service charges  and all other charges. It is not very common to pay more than 1.5 times  or in some cases, more than twice, once you miss your due date. If you  consider the fact that the minimum amount due is just the interest part,  the effective annual rate shoots upto 60% and more, excluding the late payment fees and other charges.


The above is not even the tip of the iceberg. The real issue with the  credit cards is that they make you spend you money that you don’t have.  This means you are already spending the money that you will be earning  in your future and the whole idea of savings and investments goes down  the drain. How many times have you seen a brochure of offers that you  can have when you pay with you credit card? Talk of spending recklessly.

The third pit hole here is what the banks call as the Cash Limit.  CC  allows you to withdraw some amount from ATM. The moment you  take out cash, you’re billed 2% or even 3% of the amount withdrawn as  ‘processing fee’ and the interest is charged on the amount withdrawn plus the processing fee. Remember this thing: Interest is charged on the process fee as well.
Also, there is no interest free credit period for cash withdrawals. It’s only for purchases.

One more trap of credit card we all miss is that it makes one buy  more online. Instant gratification and easy access to money is the  culprit here.

Well, like I said in the beginning, if you know how to handle the  card, it’s a great tool. But if you lack the discipline and are a big  spender, stay away. Nothing could be worse for you. If you have to  absolutely use a credit card, keep in mind the following:

Know the credit cycle and time your purchases accordingly. If you  have 50 interest free days, make your purchases in the first 10 days.  That way you will have at least 40 days to pay. Making purchases on the  45th day is a bad idea. Wait for 5 more days and make the purchase on  the first day of the next cycle.
NEVER ever fail to make the total amount due on the due date( Paying before is a bad idea)

If you fail to do the above, NEVER EVER fail to make the minimum  amount due on the due date and finish off the total amount due ASAP.
And most important of all, keep a track of all your spending, credit limits, amount due, due date.



Well, like I said in the beginning, if you know how to handle the  card, it’s a great tool. But if you lack the discipline and are a big  spender, stay away. Nothing could be worse for you. If you have to  absolutely use a credit card, keep in mind the following:

Know the credit cycle and time your purchases accordingly. If you  have 50 interest free days, make your purchases in the first 10 days.  That way you will have at least 40 days to pay. Making purchases on the  45th day is a bad idea. Wait for 5 more days and make the purchase on  the first day of the next cycle.
NEVER ever fail to make the total amount due on the due date( Paying before is a bad idea)

If you fail to do the above, NEVER EVER fail to make the minimum  amount due on the due date and finish off the total amount due ASAP.
And most important of all, keep a track of all your spending, credit limits, amount due, due date.

Make use of your smartphone and have reminders for all these.

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