Thursday, 26 January 2012

Credit Card Trap

We all have lived with a cultural resistance to casual credit. But days are in fast forward mode. The technology brought in a few evils along...In general; Buying/Spending capacity has increased for an average middleclass family.  

What is Credit Card? Do I really need to define this? Credit Card is Monster in disguise. It carries a 16 digit number.Credit Card is nothing less than a computer Virus, Yes the same virus that causes damage to your Computer. Many a times the damage caused by virus is repairable by simple solution of formatting  the computer. Repairing the damage caused by Credit Cards is not easy as formating the computer.
Have you all ever wondered ...If there is any service in this world that is offered free of Cost? If the answer is No, then why CC companies are pestering you with an offer of Free Credit Card?
The Credit Card (CC) Companies have a huge facility with lots of employees under their payroll. CC Employees call you up at their cost and are willing to give you absolutely free Credit Card. Sir, you don’t have to pay anything for using it…!!!Further for this CC you  get guaranteed 5% cash back. Wow Amazing.. Right?
Credit Card companies are not keen on annual fees that you might have to paid, Most of the times it s waived off. Remember Monsters don’t hunt for insects. They hunt something that has good amount of blood in it.
How Credit Card Companies earn revenues:
  • Every time you purchase using the credit card, some percentage (approx 2%) of the price is paid by the retailer to the Card Issuing Company.
  • Every time you forget to pay the bill on time.  (Minimum of Rs 300). CC companies love such people.
  • If the CC balance is not paid in full, you will be slapped with high interest that is applicable for your card. (Approximately 20% or more?).
  • If you exceed the limit. Example if 25k is limit on your card, you make purchase of 30 K. The CC companies will be happy to approve your transaction. They are now ready to present you with the over limit penalty.
  • You use your CC to withdraw cash in ATM.  CC companies are ready to present you with Advance transaction fees (approx 350 or so) + High interest rate.
  • If you use your CC to buy something that is sold in other currency. Example you buy product that is tagged for 500 $. You end up paying approximately 1500 Rupees extra. I don’t know for what good cause?
  • The information that you provided is sold to some advertising company. CC Company makes decent money by doing this…
  • The list can go ON and ON….If you keenly observe, the only person who is paying out with his nose is customer/consumer. Don’t get yourself carried away by catchy words like “Cash Back Offer”, “Double Reward Point”, etc . The Retailer will any way adjust the product price accordingly to compensate the amount being paid to CC Company. Wake UP Guys Wake UP.You are in pathetic situation if you have the habit of flashing your CC for everything you buy including basic necessities like food, vegetables, medicines, etc.  In addition to this habit, if you are impulsive buyer and love to buy new gadgets, Trust me CC companies will love to welcome you with RED CARPET.
Here is few TIPS to Get out of Credit Card Trap.
  • Destroy your CC today.
  • Clear off your Outstanding.
  • Stop Impulsive buying.
  • Buy Only if you have Cash
  • Try and Avoid Window Shopping.
  • Prepare a list of all that you need. Stick to the list.
  • Use Debit Card if you have to make online purchasing.
If your Goal is Wealth Creation, Stay AWAY from Credit Cards. Instead use your Debit Card. Do you agree? Share Your Comments Please.


Its me said...

I disagree to the point you should not use credit card and instead use debit card. What difference that makes? You are paying the same amount of money if use either of the card. Also Credit card transactions are profitable for the customer if you use it wisely. In my case I am getting 5% cash back while filling fuel and paying phone bills.If I am making cash payments then I need to pay the same amount without any discount.I am saving an average of Rs.200 every month only from fuel and phone bill. For me its a very good saving.

WealthUCreate said...

Hmmm... Nice to know that you use your CC wisely. How many people use it like the way you do. How many people read the fine print and bother to carefully read the monthly statement? The offer you have mentioned cannot be generalized for all CC.It could be exclusive offer available for you. This again comes with few condition, i am sure you are aware of. Conditions like "applicable only if used in specific outlets", "applicable only when CC is swiped on so and so machine". Savings of 200 rs is possible if you have descipline. By the way if you are comfortable, would you mind sharing the features of CC?

Kiran said...

I really like the statement "Remember Monsters don’t hunt for insects. They hunt something that has good amount of blood in it" :)

WealthUCreate said...

Thanks :). Do you use CC? If yes, how has been your experience.

Kunal Kishor said...

I use CC... A LOT!

And not once have I paid the price of it... yet!

I get the 5% cash back on any retailer.. Plus got sometimes got discounts on cards.

The most useful thing I see is that I can "delay" the payment. My statement period is such that, on purchases made after 20th of Jan, I can pay it after 4th of March (so 2 salaries would've come)

Yes, you need to be really careful about spending because of convenience (and in that, there's not much difference b/w a debit and a credit card!)

BTW, what's the point about the retailer adjusting the 2% he pays to the bank? The cost is same even if I pay through cash.. In fact, some of them do give discounts if you pay through cash, so I ask for the discounts, if not use CC..

WealthUCreate said...


As you mentioned, we need to be carefuly about CC. If you happen to miss out on few occassions, you end up paying good amount of interest.

The idea here is, with CC, there are chances of over spending. On general note it has been observed people who stopped using CC ended with reduced monthly expense.

Very few are make the proper use of CC. If everybody starts using CC the way you are doing, Soon CC companies will close down. What you say?

Anonymous said...

It depends on how you manage the credit. I use CC a lot and have first hand experience of paying interest and penalty. But thats a decade earlier. I learnt my lessons and started managing it more wisely, paid bills on time. I also set myself a very low limit (<10% on what actual CC limit is). Most of the times I manage and ensure that I am within the limits. Sometimes I do have to spend more in which case I plan such purchases.

Anyways CC is as good or as bad as you use (or misuse) it :)

WealthUCreate said...

Hmm.... so you have seen both faces of credit card... As long as you know the DO's & DONT's of credit card, it should be OK.

Using credit card in emergency or with Low limit should be fine.I have few close friends who have paid interest almost equal to the price of product. All they did is to pay the minimum amount every month.

Murali said...

I use CC a lot.Infact over the last three years I have got cash back of around 10,000 Rs.

I follow the below rules for using CC:
1) No impulse purchases. I use it for all my daily needs.
2) No purchase that is beyond my repaying capacity in a billing cycle.
3) No converting to EMI etc.
4) I pay the full bill before due date, no missed payments or just minimum payments.
5) My CC due date will be around 28th of every month, so I keep the amount due in short term deposit of 25 days using the online facility. I get the money back on 25th along with interest of 100-200 bucks, then I pay the CC immediately using the online facility again.

In short if one can tightly control the CC usage and payments,CC is a blessing, else you will be caught in debt trap.

WealthUCreate said...

You are doing everything that needs to be done when you use CC. how many of us have this descipline. In case we miss on something, there comes the problem.

Hmm... CC a blessing? I tend to slightly disagree. There are plenty who have burnt fingers with CC. CC charges very high interest rates.

Murali said...

Can you please do a write up on Credit bureaus,credit scores etc ? I just started reading your blog, not sure if you have already done one.

WealthUCreate said...

Done Sir... I will have this on my card. To see all that is in there on blog for now, Click on "Site Map" Tab at the Top.


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