The advent of credit cards has been a boon for consumers for they can easily pay their bills with the help of credit cards and pay the credit card bill at the end of the month. The extent of use of credit cards can be gauged from the fact that the volume of credit card stands at 30 million vis-à-vis debit card which stands at 800 million. Yet the transaction value of credit card and debit card is same.
People tend to pay Minimum Amount Due on their bill (which stands at approximately 10% of the total bill) and the rest of the amount they tend to carry over. As a result, they incur a huge interest cost, the interest rate of which is at APR~42% (Annual Percentage Rate). This eventually leads to credit trap and ruins your CIBIL.
There are plenty of ways which can help you manage your finances well. You can go through the following tips to avoid the debt trap:
- Swipe for the items which are affordable: The credit card world is replete with the instances where people forgot the fact that they cannot afford the item but ended up purchasing it through credit card. People tend to overlook the fact that at the end, they have to pay for they have spent. The general rule of thumb is you tend to overspend if you are unable to pay all your expenses and carry the expenses towards the ending of the month
- Plan your budget: With the proliferation of mobile apps which can help you plan your budget, you can use this opportunity to plan your budget wisely and don’t rely on credit limit provided by credit card partners
- Pay the full credit card bill: As we have already illustrated, the APR of credit card runs at the rate of 42%. This interest rate is hefty and could further deteriorate your budget. The best solution is to pay the credit card bill in full rather than paying MAD (Minimum Amount Due)
- Issue less no. of credit cards: Many people tend to issue 4-5 credit cards and start using it when the limit of previous credit card gets exhausted. This way they get into the credit debt and destroy their CIBIL score. The better solution is to just issue 1 credit card to yourself and use it only in case of emergency.