In the last couple of years, owing to increased awareness about credit cards and their ease of access, the credit card market in India has witnessed significant growth. Growing aspirations in terms of lifestyle and demand for credit have resulted in an increase in credit card issuances.
Though credit cards have several benefits, irresponsible usage can lead to the piling up of your credit card debt.
Ways to avoid a credit card debt trap.
Understand the card
Credit cards come with a range of interest rates, fees, and reward programs. Look for one that best suits your circumstances. Some of the important details to take note of are the rate of interest, grace period, membership fees, and renewal or annual fees. Take care to understand how the card works and how the interest is applied.
Can’t afford it; don’t buy
Credit cards are not a source of free money. In fact, using a credit card is like taking a loan. A simple way to avoid card misuse is to charge only those purchases to the card, which you know you will be able to afford even at the end of the month. A mobile phone worth Rs.40,000, might look affordable in the first week of a month, but too expensive in the last week.
Learn to budget your needs and wants by creating a realistic plan of how much you can spend. Do not overuse your credit cards. Ensure that the usage on your credit card is no more than 40% of your credit limit.
Remember the due date
Staying on track with your credit card payments is one of the best ways to avoid credit card debt. The late payment fees along with the accruing interest rate can lead you into a debt trap. Also, paying your dues on time (preferably earlier than the due date) is important in maintaining a good credit score. Any delays can impact an individual’s credit score negatively. It is advisable, therefore, to set up timely reminders for your due dates.
Pay the full amount
Paying your entire balance each month can help you avoid credit card debt trap. As far as possible, pay your credit card dues in full (avoid paying only the minimum amount due).
Make payments easy
To protect yourself from damages, pay on time. But it may so happen, that you forget to pay the credit card bill on time. To avoid such instances, simply create an electronic clearing system mandate with the bank to automatically debit the credit card bill amount every month.
Credit cards can be a smart tool if used the right way, especially to ramp up a good credit score. To make the most of it, educate yourself on how each credit card works, understand the policies and try to make payments on time.
Credit Triangle is a one-stop solution for all your credit and finance needs. We help you with credit health management, repair, and improvement.