A credit card seems very attractive as a means to “Buy now, pay later” and can be of great help during emergencies when you don’t have enough cash on hand to deal with the situation. However, all this convenience comes at a price – in the form of interest charges that seem to keep going out of hand.
This is why the decision to get a credit card should never be made lightly. There are several things to keep in mind before applying for a credit card:
- What do you intend to use it for? If you only intend to keep your card for the one-off emergency, you probably don’t need to worry. But if you imagine yourself using your card to finance a lifestyle you wouldn’t be able to afford on your regular income, or paying recurring expenses for essential items such as utility bills or groceries, you need to reconsider. Credit card fees can add up fast, and this will continue to put a dent in your pocket for a long time to come.
- What are your spending habits like? If you regularly end up with little to no savings at the end of the month, your credit card will only make your situation worse. In fact, you might end up incurring additional debts as you now have one extra bill to pay each month. Unless you have the means to pay off your credit card bills within your current levels of income, you should not consider getting a card.
- Will you be able to afford it? As a rough calculation, remember that your minimum payment will be around -5% of the total balance on your card. If you cannot pay up one month, your You should manage your credit card spending in such a manner that you will be able to handle the payments and the deadlines. Banks usually charge a penalty between 1,000 to 2,000 Rs. for late payments as well as additional interest and tax to further inflate your bill.
- What are the annual fees? A lot of customers remember that interest is involved while paying off a credit card, but tend to forget about the annual fees. While interest is incurred only if you use the card, you need to pay the annual fees whether or not you have used your card. This fee is usually a lump-sum amount that is added to your statement once every year, and may be increased The higher your credit limit, and the greater the value of the card (Example: Classic, Gold, Platinum credit cards), the higher will be the annual fees. Ask yourself, is it really worth it to pay this amount of money every year?
- How many cards do you already have? If you already have one or more credit cards, think before getting your next one. Yes you have an AAA+ credit rating and the platinum card has several attractive privileges, but remembers that defaulting on even one card can mean that the other banks will not be as lenient with you in case you miss your payments.
It is very important to keep in mind the consequences of late payments. The bank will generally ignore one or two missed payments if you have been regular in the past. Depending on your relationship with your bank, it takes about three to five missed payments for you to be listed as a State Bank defaulter, so it is important that you manage your payments accordingly.