The Economic Times, Friday 3rd November.2006
Do you see a high balance on your credit card statement? Do you carry credit card dues to the next billing cycle? Credit card dues and associated penalties are very fast to accrue and very difficult to dissolve. This is because the interest rates on them are exceptionally high - to the tune of 20 to 24 per cent.
Many mismanage their cards and end up in a debt trap. The convenience of not having to carry cash around and tremendous purchase power in your wallet, has contributed to increasing popularity of credit cards. But many people who make lavish purchases and generously swipe their cards, tend to forget that they are living on borrowed money. And money borrowed must be repaid if not now, in the next billing cycle. Credit card interest rates on late payments are very high.
Competition among banks compels them to waive off annual fees and other obvious expenses. However, credit card companies must make money and pay commissions to their agents to stay alive. From where do they get this money? They recover it in the form of penalties, late payment charges and fees. Some companies totally block your card if you fail to make monthly repayments. Others expect a minimum monthly payment to keep your card active, while penalties keep accruing. On spending in excess of this limit, banks do charge a penalty. It could be a percentage of the amount that you’ve exceeded by, above your stipulated limit. Say you write a cheque and it bounces. What happens? A cheque bounce charge of around Rs 250 will appear on your statement. It has been studied that credit card users spend about 10 to 12 percent more on items than buyers who pay with cash. Establish a monthly budget to curb your spending. Treat your credit card like cash, deducting from your money account the purchases you make with your card. This way you’ll never be in a situation where there aren’t enough funds to payback the lender. Pay the entire balance each month. Never carry a credit card balance. Regularly paying your monthly bills will ensure that you do not cough up high interest rates and heavy late payment fees. If you find your credit card dues difficult to manage, it is better to change your spending habits. Contact your creditors immediately if you’re having trouble making payments. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level.
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