Credit cards are a useful financial instrument, which makes it easier for you to manage payments. However, even for the most experienced cardholders, these credit cards can mark the dangerous road to debt. Credit card debts are especially problematic for new users of credit card, who are unaware of its perils.
Thus, even when you are using the best credit card for beginners, it is important to understand the dangers of debt. So, it will help you cultivate better credit card practices, which may help you avoid a situation of credit card debt.
Let us find out how you can protect yourself from this financial dismay!
The Perils Which Come With Credit Card Debt And The Precautions To Take
Spending More Than You Would Under Normal Circumstances
Many studies are witness to the fact that using a credit card may induce a habit to overspend. Paying with a credit card may make you more indulgent than you would be under normal circumstances.
In some cases, credit card users may be ready to spend twice the amount that they would, if they were paying with cash. This normally happens because making a payment using a credit card is easy and convenient. Many psychological factors may be at play here, especially because you don’t have to see hard cash leaving your wallet when you pay with your credit card.
This is how you can easily end up with a huge debt, without the means to honour it. Thus, it is very important to set a spending limit when using a credit card.
This limit should be based on your ability to pay back for the amount which you owe. Consider various factors, such as your lifestyle and earning capacity to determine this limit.
Added Interest Expense
Although it is much more satisfying to pay using a credit card, it is not best for your financial situation at all times. Each month, you will owe your lenders a certain sum of money in interest, for the amount outstanding on your credit card.
However, failure to make complete payment of the due amount will account for a certain portion of your payments counting towards interest payment.
Thus, it will become harder for you to pay off the remaining balance and may even increase the time that it takes you to pay off the amount that you owe.
If you want to avoid this situation, you should attempt to pay off the entire balance on your credit card each month. If not possible, try to pay off as much amount as possible for you, until you bring your balance to zero. Otherwise, you may be headed straight towards a debt trap.
Increasing Pressure Of Debt
Borrowing money without the capacity to repay it is a sure shot road to debt. Debt is not a financial problem alone. Along with it, there come several other issues such as depression and stress, which may put you under immense pressure.
Additionally, the fear of the debt itself may stop you from fulfilling any other financial goals which you have envisaged for yourself. This could deter you from fulfilling your goals and financial priorities.
The only way to stop this from happening is to recognise the instance when it occurs. If you find yourself unable to pay off your balance each month, it may be a wake-up call for you to focus on your financial position. At this point, you may even need to use various tools like a sip calculator to estimate your pending liabilities.
Potential Damage To Your Credit Card Score
Your credit card has the potential to impact your credit score to a large extent. Unless you are using your card wisely, you run the risk of damaging your CIBIL score, which may be irreversible or else, takes an elaborate amount of time to repair.
Missing a payment which is due on your credit card for an elongated duration may give a real blow to your score. The more you keep putting off fulfilling your liabilities, the more troublesome it will become for you.
The only way to avoid this kind of damage is to make timely payments of your credit card bills. Additionally, you should aim to keep only as many cards with you as you can manage. There are a plethora of cards like travel credit cards, shopping cards etc, but only subscribe to what you need. Also, take care to maintain your credit card balance below 30% of the credit limit which you are allowed.
False Sense Of Security
To keep your account in a good state, your lender may only ask you to make a certain minimum payment during a month. However, this facility itself is a route to credit card debt for most people.
Being able to make the bare minimum payment on your card may be possible for you, even when you are not in a state to make the complete payment. While this feature may help you out in one month, eventually it may lead to a collection of a huge balance on your card, which may be impossible for you to repay eventually.
Also, you will be collecting interest on every balance that remains unpaid during a month. It is most ideal if you make complete payment of a due balance every month. Failure to do so may mark the beginning of a credit card debt for you.
There is more than one way in which you can fall prey to credit card debt. Due to the debt feature, credit cards can be highly dangerous financial instruments, especially for those who do not understand how to handle the same.
It is important to note that credit card debt is not a short term effect. The impact of debt may last for a long duration, which might make you fall behind on your financial goals to a large extent. Thus, it is absolutely important to recognise the warning signs of a credit card debt and pull yourself out of it at the earliest.
As discussed, there are certain ways to ensure that you do not find yourself in a debt situation in the first place. If needed, you should consult an expert to guide you with your financial matters so that you can stay out of credit card debts.