Is your credit card a ‘debt’ sentence?

According to Worldline E-payment Services, the total number of credit cards in India stands at approximately 21 million. The question on everyone’s mind is how many of these 21 million users are using their cards responsibly and paying off their dues and how many are slowly but steadily sinking into debt?

Card-swipes provide a quick and seemingly painless solution compared to the pain of watching your hard earned cash float away. Now that many of us have sworn off cash, thanks to demonetization, cards and wallets are as easy as it gets.

Making one payment into a credit card account at the end of the month is surely less painful than making fifty separate cash payments throughout the month .

So what is a credit card really used for?

Credit cards have interest free periods which range from 20 to 50 days and by extending an unsecured loan to you for a period of 20-50 days, the card issuer is taking on a significant risk. In order to compensate themselves for this risk, they need to charge a commensurate interest rate and late payment fee. This interest rate is usually 2.5-3 percent per month, which works out a 30-36 per cent per annum alongside a late fee charge ranging from Rs. 500 to Rs. 1000.
What a credit card really needs to be viewed as is a convenience tool. You need to remember, when you’re spending on a credit card, you really are spending your future cash flows which should be for your future financial goals instead.

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Traps to look out for:

Don’t keep many cards; one VISA and one Mastercard will work. Also, resist the temptation to increase your spend limits. Make sure to track your total weekly spends. Try to pay off the full outstanding amount before the due date. Surely avoid taking loans on your card and delay your big purchases instead.
How to come out of the debt cycle:
Start by taking stock of the total outstanding amounts on all your cards and detailing them. If you have enough assets mobilize this amount and pay off the total debt as soon as possible.

If you do not have enough funds, you may need to undergo a significant degree of ‘fiscal consolidation’ by cutting down current spends and getting rid of the stuff that might be costing you a lot in terms of an EMI or maintenance charges. Free up enough from your monthly spend to prioritize paying off your card outstanding within 12-15 months.