The household debt of India has risen to Rs. 6.74 Lakh Crore for the financial year 2017-2018, out of which Rs. 686.3 Crore is owed to credit cards as listed in Economic Times. This surge in debt contribution depicts the financial liability of credit card holders.
Possible reasons for the rising debt of credit cards could be
- Increase in the number of credit card users
- Increment in multiple credit card usage per person
- Wrong expenses put on a credit card
One should be well aware of how to use a credit card so that they don’t make the same mistakes several others are doing, i.e. purchasing products that charge a hefty fee and interest rate.
Credit cards were introduced catering the borrower’s need for emergency funds and provide them with various rewards for the purchases they make. Therefore, it is in the best interest of consumers to accumulate the benefits of having a credit card and not spend on products that can raise your credit card debt significantly.
Below mentioned are some expenses that you should avoid with credit card:
Paying your mortgage loan EMIs through credit card might seem a feasible option. However, might not be beneficial.
As well, a loan calculator allows you to calculate the total loan amount, interest rate, number of payments, and amount per installment. Also, you can compute the principal amount by providing the different compound frequencies (weekly, monthly, quarterly, yearly). With this loan amount calculator, you not only find the loan payments but also able to determine payoff dates, amortization schedule, repayment schedule, and rate of interest. In the advance mode of the loan calculator, you can use the repayment option if you want to pay some extra payment single-time or on every installment and get a payback period.
Your EMIs for a mortgage loan is already incurred of loan interest, and most lenders do not accept direct payment through a credit card. So, you will either have to take cash advances or make payment through third-party companies for mortgage payments. However, third-party companies charge a convenience fee making the amount even bigger.
Paying off taxes
Paying off your taxes for situations when you have large outstanding amounts can bring you more disadvantages than benefit. Your credit card provider may charge a surplus 2-3% convenience fee for clearance of duty debt through credit cards. Hence, you can end up paying more than you actually should if you lack knowledge about how to use a credit card.
Down payment of a car or home
Exhausting your credit limit is one of the poor financial decisions one can make. Utilising maximum portion of the credit for down payment of car or home can result in incremented utilisation ratio, which can negatively impact your credit score.
Also, interest and other charges will be applied to the bill if you can’t pay it in full. So, one should avoid using a credit card for down payment of such large purchases or in places where substantial credit amount is required. You can focus on increasing your credit card limit and your purchasing power.
Payments for legal litigations
Payments made for legal litigations that you or your business is accountable for is also not a recommended expenses you should put on your credit card. Potential lending institutions may re-consider your online credit card application on this basis.
Making small purchases with a credit card isn’t an optimum way of using it. Spending credit balance on these minor expenses may have unaltered effects on your financial situation.
These small transitions will not appear worthwhile when making bill payment at the end of the month. One should know how to use a credit card effectively and rather go for cash to meet the small indulgences.
Cash advances through credit card
While applying for an online credit card, several borrowers make sure the credit card has a cash advance facility. Even though it comes handy for emergency cash crunch situations, one should avoid withdrawing cash from credit card. Even though not an expense, these short-term advances on credit card can lead to high fees charge and interest rate.
Nevertheless, some financial corporations provide a few day interest-free cash withdrawal facility on credit cards. Bajaj Finserv RBL Bank SuperCard is one such card that offers a 50 day interest free cash withdrawal facility. You can withdraw cash and repay within 50 days without having to pay any interest.
Taking the right financial decisions can help lower your monthly financial obligations. Borrowers need to understand and carefully use their credit card to save themselves from making chargeable expenses.