“Congratulations! Credit card with a limit of 5 lakhs has been sanctioned in your name” – these sort of messages fill my mail inbox every second day. I wonder how and why because never in my life I have applied for a credit card. Reason – I dreadfully fear Credit Cards. Why – As a person who has been closely associated with collections department of personal loans and credit cards I come across people who often complain about the exorbitant rate of interest that burdened them and I must say they are right.
Ok, lets talk about the positives first before discussing about how Credit Cards could hamper the balance of accounts or even the mental peace. With the advent of plastic money – Credit Cards, life has certainly become easy. How?
- Easy to carry.
- No need of immediate liquid cash.
- Status symbol : Silver, Gold, Diamond (not sure if exists😁), platinum – As the level upgrades status goes up.
- Online shopping made easy.
Having credit cards nowadays is more or less staple to the lifestyle we are living. And with banks taking the aid of media (electronic, print and social) and the other modes of communication (read telephonic and emails) these credit cards are making more in roads into our lives. And before we realise, the balance of the most important aspect of our (materialistic) lives takes a toll.
Ask me how? I won’t say everyone follows the pattern but yes many do fall to this honey trap of available “Credit” and compulsive buying behaviour sets in which means we buy even if there is no absolute necessity of that product. It might be to please/ pamper ourselves or to boast around among peers and society. It might seem to be fun at first instance because you are virtually not shelling out currency notes. But dear all there is nothing called “Free Lunches” in this world. And banks are not saints to squander away their money on you. And by the time monthly statements are sent to the mail box we are already in soup! Suddenly we realise that our income is being claimed by one more expense and the percentage that goes in such payments may seem to be small when looked at in isolation but collectively it does disturb the balance of accounts of our monthly budget. Once you start using credit card a minimum amount needs to be paid every month in order to stay away from defaulters list and to maintain the credit limit, it becomes a necessary obligation. And God forbid if anyone takes cash against credit limit banks charge a separate rate of interest that might not interest us at all (I have seen my father do so in crunch situation and pay hefty price later). That is the reason I try to stay away from credit cards, my personal experience says so.
My preference? We all know there is another term called “Debit” and in relation to the plastic money we are using we have “Debit Cards”. Just like Credit Cards they are easy to handle and there is no to need to “carry” currency but you definitely need to have balance in your account to be able to swipe that card. I personally feel this as a safer option as you don’t have to worry about the interest rates as an extra burden because what you are using is your own money. No outside authority can question your expenses other than your partner 😁. And moreover with every penny spent via debit card you have a message on your phone stating the balance of your account so that you don’t go astray from your path of mindful spending.
Budgeting and Questioning : As a housewife who monitors all the expenses closely I think budgeting is very important. A clear picture of sources and amount of income and the expenses to which that income is being allocated is the prerequisite rule for charting out a good budget. We all have few fixed expenses like rent, electricity and water bills, education, insurances, weekly groceries etc. They must be provided first so that there is no discrepancy or disturbance to our peace of minds at first place. Then comes the miscellaneous expenses which are variable in nature. Always allocate a certain portion of income for expenses like gifts on birthday parties/ weddings, unannounced guests, a sudden bill that you forget to pay or the other party have forgotten to ask for and so on. Such buffering helps us avoid shocks in financial terms. Whatever be the scenario of your expenses make sure a fixed amount must go to savings without fail which should directly be proportional to your income ( higher the income higher the amount you save). BUT, I understand that sometimes no matter how hard we try savings are difficult to come by owing to beyond the expectation expenditures (like an accident or loss of income due to loss of job). Well in such situations we need to cut down our not so important expenditures. And before a penny is spent question yourself :
- Do I need this?
- Do I need this now?
- can I postpone my need till my next salary?
Such introspection would surely help in maintaining balance in income and expenses.
I once read somewhere ” Spend whatever is left after saving”. That’s an interesting approach to induce savings and stay clear of deficits. But it might not be possible for many on serious terms for many reasons. Even if that theory is followed, that might have a serious impact on economy as well for the simple fact that “expenditure of one is income of the other”. If we don’t spend (which means no demand) there won’t be any inducement to invest further which would in turn result in unemployment. I won’t go further into this “Multiplier Effect” theory and explain what happens when one spends or decides not to. We can have a separate discussion for that.
Coming back to our question at hand how to use credit/ debit cards effectively or how to maintain balance in our income and expenditure I would simply say remember to ask three questions that I have mentioned earlier. I am sure our previous generations (when there were no credit/ debit cards) definitely worked on those three questions to ascertain the priorities on which money should be spent and they had more balanced budgets even with meagre salaries than us. The current crop may call them misers but they led more happy lives than these so-called generous (in spending money) people.
What’s your say?