14 Apr CREDIT CARDS—WHY PLASTIC MONEY IS A THREAT?

Today, credit cards are the easiest way to manage finances, as it is easy to carry, easy to use and completely safe as compared to the cash. The credit card issuances have escalated to 16% year over year to 24.5 million with an addition of 3.4 million cards to the system by the banks in the financial year ended March 31, 2016. The card spends also registered an astonishing growth of 26.7% in the FY16. The figures are startling and reflect the current picture of the credit card industry in the country. No matter how sparkling and glittering this data may seem, the underline fact is that this industry is slowing eating up the concept of financial transactions.

We have tried to scrutinize the concept of credit cards and analyzed its pros and cons. No matter how easy you may find to use those credit cards, we cannot deny the fact that these can be the most expensive risk one can take. Here are some eye-opening situations that may trigger a debate in your mind.

1. Binge Buying: Since credit cards make it easy to shop, it entices people to buy more and spend more. On that instance, it may seem like a free spending and easy money but at some point of time, you will have to pay the amount back as it will be a debt for you. Credit cards have changed people’s mindset in terms of the spending money.

2) The Concept of Cashback: This concept is quite skewed. Almost all credit card holders get a cashback at some point of time. You may get a cash back as a reward system after spending a particular amount of money through the credit card, however, the bottleneck of this phenomenon is that a person develops an urge to spend unnecessarily even if the purchase can be avoided or delayed. There’s a higher chance that a person may fall under the burden of debt.

3) Security Concerns: Credit cards can be used to pay the amount in any currency but there is a diverse range of burglary that only harms the credit card holders. Due to lack of knowledge & awareness, there are higher chances of fraud and theft which could have been avoided only if you had used the actual currency. These cases are not only restricted to consumers but sellers also face issues to identify fake credit cards in addition to untrained staff who may make major blunders while doing transactions.

4) Unnecessary Expenses: Credit cards definitely helps you in the financial emergency but it can lead to expenses as for a cash withdrawal via a credit card will draw cash advance fee worth approximately 3% of the total amount of transaction. It also usually draws an interest rate worth 19-22% immediately.

5) Horrific Settlement Process: Once, you are under the burden of the loan, the settlement process is quite horrific. Repetitive calls, unnecessary message and improper behavior by the recovery agent are not less than mental & physical assault. However, if you clear your payments on time, the process is smooth but some companies have a very strict settlement procedure.

Points to Keep in Mind While Using Credit Card

Despite all the above-mentioned points, credit cards are suitable for, if used properly. You can use the credit card-

•When you are above 18 years of age.
•Having a source of income helps you to pay credit card bills on time.
•If you are keen to earn rewards then you are the right candidate to use a credit card.
•One should be able to pay bills on time.
•If one is willing to keep a certain transaction away from your everyday account.
Credit card may not be suitable for you if-
•You usually struggle to pay the bill.
•You are less than 18 years of age and do not have a proper source of income.
•You already have a bad credit.
•You are just happy with the debit cards.

So, if you are thinking to use credit cards then one should also keep in mind their benefits and disadvantages. In India, the credit cards are sold like ice candies but to pay back their bill, one has to be extra cautious and well-prepared with the consequences.