It is a myth that if the complete amount is paid up at the end of the month and nothing is carried over, then we are using the credit card company’s money for a month or so, without interest. It seems that we spend about 47% more when we use a credit card as opposed to paying by cash. Try it – withdraw and use cash to pay for your purchases for the next one month only and feel how much it hurts when paying Rs.3000 for a shirt as compared to just swiping a card!
So, should you have a credit card or not? I feel, in India, it is a necessity, but only in an emergency like paying the hospital deposit. Prefer using cash for all other purposes.
If you are the type who makes a list of things to buy before going to the mall AND sticks to the list, then the credit card may not be too bad for you.
One of the more insidious properties of a credit card is the ‘minimum payable’ part. I know of quite a number of people who pay up whatever is the minimum required and get on with life. The fact is that the portion above the ‘minimum amount’ is carried over to next month at an extortionate rate of interest – generally 42% annualized! Other charges may also apply. All this adds up to one thing – if you are paying the minimum amount, then rest assured that you will never pay up the credit card amount in full. Reminds one of the olden day ‘Lalas’ who stood outside the mill gates to collect the interest from the hapless mill workers, whilst gently refusing to take back the principal amount! Though the credit card balance is a loan, it is this property that makes it especially dangerous.
What to do? Take a personal loan, generally the interest in the range of 12 – 16%. Use it to pay up the credit card balance in full AND make sure that the balance is not racked up again. The loan will have to be repaid in EMIs – the repayment is time bound and it will be completed in a few years time, unlike the credit card debt.
To top it all, I read somewhere that the government is mulling making card payments compulsory for transactions below a certain amount. The justification being given is that this will curb black money.
A passing thought came to mind that maybe the big credit card companies have used the profits from our money to lobby the government to bring about this thinking. Is it possible for these companies to influence the government? Naah, no chance.
Niranjan Bangera
36 Properties Pvt Ltd
09870215520
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