We may live in a cashless society, but the futuristic concept of a moneyless one is still quite far away. Most of us rely very much on plastic money in the form of credit cards. Credit cards give you a credit line to money which you don’t have. It creates a temporary debt which you pay off at the end of the month. In addition, you pay a bit extra than the amount you purchased if you do not pay if off at the end of the month. So is it good that you are following the crowd by having credit cards just like everyone else? Is credit card debit good for you in the long run?
You know you shouldn’t be buying that new Bose Home Theatre system that is out in the market. Ideally, you won’t be able to afford it because of your salary. However, in your wallet is a credit card which has temporarily given your more money than you earn. With a credit card, you are spending more money that you usually do, and often it is more of wastage since you don’t necessarily need the product. Worse, you are spending money you don’t have and may be you can’t afford it with your salary.
Credit cards look all plain and simple! With the swipe of the card, you pay for your product and at the end of the month, when you get your salary, you pay the money back. Except, you are not just paying the money back! In addition to the usual payment, you are paying it with interest, surcharges, annual fees and other charges on the card. There are plenty of ways for lenders to fleece you in the fine print of their contract agreements.If you miss one credit card payment, you will be charged a fine and the amount will be forwarded to your next monthly payment with more interest.
What if you want to take a loan to finally buy a house which has been long time in the planning, but your loan request is rejected because of your debt servicing ratio or even an bad credit score? A growing credit card debt is a common way to tarnish a good credit score. Worse, if you start defaulting on your monthly credit card payments. Banks and credit card companies will always tell you that you have an good credit score, if you continue making minimum payments but then when you apply for an loan they say the debt is too high.Having a bad credit score or an high debt serviceing ratio can cause a lot financial problems, a house loan being one of them. Any future financial ventures like buying a car, getting an educational loan, personal loan will be very much effected.
A Circle of Debt
When you use credit cards, you are making purchase with money you don’t have and when you get your income, you are still using a credit card because you’ve finished your income by paying off your previous debt. This circle of credit card debt was effectively summed in a quote by Bill Keenan who said, “You have no money so you use credit, and then you pay your credit and you have no money because you’re paying the credit.”
Banks and creditors like you when you make the minimum payments as that is the what they want. Do not fall into that trap. Sales peopl sell products with an slogan of “Only 1 dollars an day you can own this” but that $1 when added up over time creates an big debt and more issues later on .