- April 24, 2018
- Posted by: moat_admin
- Category: Finance & accounting
Do you rely too much on your credit card? Are you not able to pay your credit card debt timely? Are your spending exceeding limits unnecessarily because of that plastic money?
Well, if it is so you should proceed further as to know why this Plastic Monster (yeah! You read that right!) can eat up your accumulated finances…
Paying through CC leads to Overspending:
According to Mr. Charles Jaffe, “It is not your Salary that makes you rich it’s your spending habits.”
Some people spend more money, either by purchasing more items or by purchasing more expensive items, when paying with credit than they would with cash. Purchasing a high end Smart TV seems like a piece of cake when you do not feel the pinch of paying it. Signing a piece of paper approving your purchase and not thinking of repaying the same in the near future brings quite an ease to customers.
Well, on the other side we are emotionally attached when it comes to paying via Cash.
Ahhh! ₹ 30K for a smartphone?Damn, that’s too much cash to expend?!
This is so because financing purchases through cash can burn a hole in your pocket and make your wallet lighter. Also, swiping in style frequently might lead one to buy things that are actually not required. This can pile up too much to be repaid.
Urge to Spend:
People resort to buying CC thinking that they will be able to get through easy-peasy when it comes to big purchases. But, since the burden is not felt at the time of purchase, people tend to buy things which they MIGHT use in future but not in present (Well, Maybe use it or MAYBE NOT?)
This urge can enhance and may start from spending on significant purchases and emergencies to unnecessary ones. It may become difficult to refuse this temptation of spending through plastic money if spending habits are not controlled.
Recent research revealed 74% of respondents preferred card payments (both credit & debit) for online purchases, while 51% used cash-on-delivery and 47% using net banking.
False Assurance of Security:
People/Banks offering such EASY money options cook up things which can be easily digestible by customers. They might make you believe that it’s your own money but little do we know how OWN that is ours. Consumers often think that,Credit cards are an asset they possess without realizing the fact that the amount they repay back to the banks is inclusive of the Interest amount.
One might not like to finance his/her needs and wants to be fulfilled with borrowed money since paying the same amount later will lead to themselves being burdened. Credit Cards are actually money borrowed from banks to finance present needs by paying huge interests and taxes for the same.
Effect on Credit Scores:
Many of the major financial decisions and plans depend to a great extent on the credit scores.
Want to buy a house? A Car? A plot of land? Planning to start a new business?
Credit Scores are really important as they reflect the reliability to repay loans to lenders.The higher your score, the more money you can typically borrow and the less you have to pay for a loan.
A bad credit score usually alarms that credit card debts are both unpaid and outstanding or are paid after the deadlines.
Other way round, ‘A high credit score does not mean you are wealthy or successful. It just means that you love Debt!’
‘Your Credit Report and Credit Score are two of the most vital aspects of your financial health.’
Enormous Interest Rates:
Spending through credit Cards can often be a trap. As Instant buying option seems quite an attractive choice unless, we realize about the interest included on the repayment of the debts. The interest rates are so high that it may tend to withdrawals of even savings.
The rates can range from as low as 13% to a whopping 43%.
(Isn’t that skyrocketing!?)
A never-ending Fee List:
Credit Card companies make money not just through the high interest rates charged on repayment of debt but a list of other fees and penalties too. They include the following:
- Annual fees
- Cash advance fees
- Balance transfer fees
- Late fees
- Financial charge
- Returned payment fee
- Over-the-limit fee
…. And the list goes on…! People are unaware of the fees they pay. These fees unnecessarily make your wallet lighter every month.
Drive to Finance Impulse Purchases:
Credit Card users may feel the ease to buy anything they want with the instant availability and support of plastic money. This simple act of buying without really giving a thought to budgeting our expenses can prove to be detrimental to our financial health. These impulse purchases can bury you under the Debt mounting higher every month.
Remember, Banks are not trying to help you by offering Credit. They are selling a product that makes them money!
So, we’re saying, Buying Things NOW and paying for it LATER will only make you poorer.
Reading through the content above I hope you may consider saying,” NO, Thanks!” to credit Card companies the next time they approach you.
Decide WISELY for yourself ! Don’t fall in the TRAP!
Contributed by Divya Syontri from Moat Wealth Relationship Management Team