Credit cards are source of convenience in transactions. A credit card enables you to pay for transactions, even if you do not have sufficient balance in your account. Every credit card has a certain amount limit and one can use it up to that and later pay back the credit taken.
Few decades ago, people solely depended on loans or advances as a debt option. But since credit card usage became full-fledged, people began to find it convenient as there is no need to carry cash in hand and more purchasing options were open even when they do not have the necessary balance.
As on August 2018, India had about 41 million credit cards in operation. This is an alarming situation. Not many of us understand that we are automatically becoming debtors as in case of loans, when we adopt the continuous usage of credit cards.
It is obvious that credit cards give the users a temptation to spend more than what they can afford. Credit cards open up additional purchasing power and give you an indirect illusion that you have more money in hand. This is exactly the mental condition or the technique based upon which credit card companies reap high profits day by day. How many of us realize that it is a form of a debt? A debt wrapped in glitter paper! In most situations, while signing forms or registering online on any websites, we seldom take the patience to read the terms and conditions. We just click it, accept it and move on to our concerned task. But, the terms of credit card companies are pretty confusing and if not read properly, you may end up in vicious circle of debts. If you constantly carry a balance on your credit cards and your interest rates are high, you may end up paying the credit card companies two or three times the amount of what you actually spent.
In teenage or youth, we may find it difficult to hold ourselves from spending money on hangouts, food and drinks, entertainment etc. In India, young people are more prone to fall into the traps of credit cards. Financial stability is something which requires years of proper financial planning and management. It is at this age that we should begin thinking of financial goals – how much to save every month, how and where to invest our savings, determine assets to be bought in 5 or 10 years etc. If you spend your savings on credit card bills, it will be hard to gain financial stability in the future. It can also affect your credit score adversely.
A credit score is a numerical expression based on a level of analysis of a person's credit files, to represent the creditworthiness of an individual. In India, the CIBIL score is the most prominent credit score rating. Lenders like banks determine whether or not to grant a loan to the applicants based on their credit scores. Recently, Metro Manorama reported that private firms are beginning to scrutinize the credit scores of job applicants and only those with good credit scores are going to be recruited. Most of the IT Companies are adopting this method because of the common proposition that if an individual has many debts, he or she cannot focus completely on the job and it will directly impact the efficiency of the task being done. Only a creditworthy individual can put in full commitment and concentration in the job. This is a debatable topic, indeed.
However, prevention is better than cure. We live in a globalized world and jobs are getting highly competitive. People are still struggling with unemployment in India. If we ignore our financial goals for a momentary pleasure, it may end up ruining our financial stability in the future. Thus, we need to use credit cards with caution and limit our usage. One way to rescue is don't use a credit card in the first place! If you use a debit card, every time you swipe it, you know that your savings balance is going down. Another way is to record your daily expenses in a book or mobile application and check your expenditure pattern at the end of the month. Then, you will be at a position to re-align that pattern yourself! Let us thus take a pledge that we won't turn into debtors unnecessarily and be financially disciplined for a better future.
(Opinions expressed are personal)