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By: Sofia Mistry |
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| Most of us remember the thrill of receiving our very first credit card and the temptation that comes along with it. The feeling of financial freedom and the ability to buy that new cell phone or treating friends out to dinner for no reason is hard to resist when you know you have a credit card in your wallet. As long as you have a fat paycheck and a healthy bank balance your huge credit card bills may not worry you at the end of the month, but for the rest of us that is not an option. |
| We are all so used to receiving those annoying calls on our cell phones asking us to sign up for a new credit card and although it sounds exciting that you have been pre-approved you need to realize that it is also a trap. |
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So here is common list of traps that one should avoid while using credit cards. |
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1. More the merrier? Not really |
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Some people think it’s cool to have a deck of credit cards in their wallets. Credit card offers are plenty these days and getting approved is no big deal. The problem arrives when you get too many of those cards and end up like a juggler at the end of the month struggling to pay your bills. The trick is to ask your-self, do I really need this new credit card? The answer most definitely will be “NO”, but it’s that exciting airline offer or a balance transfer deal that eventually makes you say “YES”. |
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Many credit cards means many more bills to pay, so learn to say “NO” when you know you have enough. |
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2. Using your credit card like an ATM card |
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This is another common mistake that most of us make. We are nearing the end of the month and are running short on cash or we want to buy something so badly but they don’t accept credit cards. We end up using our credit cards like an ATM card. |
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The fact is cash withdrawals don’t have a credit free period. It doesn’t matter if you pay your bills on time and have a zero balance all the time, the moment you withdraw cash you are charged am interest fee most banks charge about 3% per month which is 36% per year. As long as you use your credit card at merchant establishments you enjoy the free credit period if not you are getting into a debt trap. |
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If you ask me, I would say destroy that ATM pin number as soon as you get it because you wont be needing it, unless you have good control over your spending habits and will use it only incase of emergencies. |
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3. Using roll over credit facility |
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Many of us wonder why we should settle the entire credit card bills when we can pay just the minimum 5% of the outstanding and roll it over to the next month. Well the answer lies in the huge interest rate that you need to shell out on those bills, for some it could be as high as 46% per year. |
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A credit card is best only when you maintain a ZERO balance on your bills and pay them off before your due date. If you have an outstanding on the credit card bill it means you are charged interest for every single item that you have purchased from the date of purchase. As long as you have no outstanding you can enjoy the interest free period that the credit card provides. |
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4. Making late payments or paying on the last date |
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Now this is the worst mistake you can make. Making late payments can impact your credit rating, yes credit rating. The government is now working with banks to draw out a strategy that will study and individual’s payment history to decide what interest rate to apply or to decide if the person is worthy of receiving a loan. Therefore it is very important to maintain a healthy repayment record. |
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Paying your bills late not only attracts a penalty but also increase your interest rate. Most banks will have this covered in the small print that none of us bother to read, but this is true. A defaulter ends up paying higher interest on the overdue amount and will continue to pay a higher interest rate in the future too. It is very important that you pay off your credit card bills on time every time. If you can’t pay off the entire bill, at least pay the minimum due which is better than not paying. |
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It is also not a good practice to wait till the very last day and pay your bills on the due date. Banks usually need at least 2 days to process your payment/check. If you have the money and have decided to pay why wait till the last date? If the bank accounts for your payment as a delay then you will have to pay a penalty and also interest charges or be hassled by having to call them and explaining the reasons for the delay and they might and I stress “MIGHT” give you a break. So why wait? |
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5. Spending on stuff you don’t actually need |
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If it were not for your tempting credit card you probably would not have bought that extra pair of jeans that looks just like that one you already have. This is a common scenario and this is exactly why credit card companies love to spoil you with higher credit limits. Before you decide to buy something that you are not sure you absolutely need, think hard or better still wait for a day or two before you decide. After a lot of thought if you still think you should have it then you go get it. |
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6. Not checking your credit card statements thoroughly |
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Credit card fraud is a reality, with more and more people using credit cards online and in vulnerable places like gas stations where you need to handover your card to an attendant. It is important that you read your statements thoroughly and if possible check the statements against the credit card receipts you have been collecting. Its quite possible that you may spot a transaction that does not belong to you or may have been charged a higher sum than you agreed to pay for. |
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Credit card companies usually provide you with a 30-45 day window within which you are supposed to report such inaccuracies, failing which the statement is considered accepted by you. As soon as you spot or doubt a transaction, you are required to contact the credit card company’s help desk and register a complaint. The charges if found inaccurate will be reversed and the transaction investigated. |
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7. Not paying attention to terms and conditions |
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Often the fine print as they call it contains vital information that credit card companies want you to avoid reading. But reading it could make a lot of difference to you. 0% balance transfers, 0% EMI, 0% fuel surcharge are just some of the offers doing the rounds these days and if you are not patient enough to read the terms and conditions of such offers you may be in for trouble. |
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These exciting offers usually come with a set of rules that provide you with no or low interest rates provided you meet certain conditions which we often don’t bother to read about. Failing to meet those conditions could mean that you end up paying a high rate of interest on those transactions you thought were interest free. So next time a credit offer arrives in your mail, make sure you ask yourself the question, what’s the catch? Remember, there is no such thing as a free lunch. |
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So remember whether you are credit smart or not, make sure you follow these simple guidelines to stay out of these common credit card traps. |
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Spend Responsibly. |
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