Take credit cards
Credit cards are very easily available nowadays. All it needs is a minimum annual income of Rs 60,000/- PA for an employee in an organized sector, give proof of residence, proof of identity, your monthly salary statement and bank statement and your credit card is received by you at your doorstep. Credit card companies aggressively canvass for the credit cards employing young college students or temporary representatives. These people are found near banks ATMs aggressively canvassing for the credit card sales.
A credit card is a plastic card which allows a customer to take credit from the credit card provider which he can repay monthly at regular intervals taking into consideration the credit period allowed in a 45 days payment cycle.
Credit cards have their own pros and cons. Let us discuss it pros first. When you are facing a sudden shortage of cash the credit card comes handy also in cases when you need to urgently purchase a consumer durable or property it is a very useful tool. But it does come with a price. There are various types of credit cards viz. Diners cards, Visa Cards, Master cards etc,
Many of them have tie-ups with banks/finance companies etc, which canvass and sell the cards. There are different types of cards i.e. ordinary cards, gold cards, silver cards, platinum cards etc. Also we have cards related to the super markets, petrol cards by petrol companies etc.
The number of types of credit cards and also the number of credit card providers is mind-boggling. Some credit cards are life time cards, some have expiry date, some have yearly fees, some do not charge fees, some have less credit limit and some have more credit limits. It is always safe to have a credit card with a low credit limit so that you do not fall into the dreaded Credit card DEBT TRAP.
People need cash and when they have a genie, which gives them immediate cash, they try to use it to the maximum. You can withdraw cash using your Credit card through the ATM., but this comes at a price.
Firstly cash withdrawals do not come cheap. You have to either shell out Rs 150/- per withdrawal or 2.5% of the amount of withdrawal whichever is more. Moreover there is an interest of 2.5% PM either on withdrawal or purchases that has also to be taken into consideration. The 45 days credit cycle should not be neglected and one has to make payments within that cycle to avoid interest and one has to also take into consideration the 60days interest free credit period, which also some credit card providers allow to avoid payment of interest.
One has to use credit cards only in cases of emergency and not allow it to take the place of ready cash. An acquaintance of mine spent lavishly using his credit card for the marriage of his daughter. The liability amount came to a whopping Rs 60,000/-. He also continued spending with his credit card if he had any shortage of funds and started to pay only the minimum balance plus some extra amount but the liability only increased further. He had unfortunately fallen into a debt trap and the credit card provider started chasing him for funds pestering him everyday over the phone and visiting him at his residence and office asking him to pay.He did not reckon that the interest clause of 2.25% PM would almost be nearly 30% at the end of the year compounded per month.
He became totally distraught and took a timely help from his friend who advised him to adhere to the 45 days repayment schedule and immediately stop using his credit cards for other expenses. He also advised him to pay the maximum installment on his credit card. He now pays Rs 15000/- PM and his liability has come down considerably. He has almost repaid 60% of the amount.
All it takes in optimized usage of credit cards is strong monetary discipline. There are people who juggle two or even three credit cards and are living very comfortably.
I know people with a monthly salary of Rs 5000/- who are very successful at it and live quite lavishly with a strong monetary discipline using one, two or even three credit cards.
I know someone who has a monthly salary of Rs 5000/- PM but He spends almost Rs 7,000/- PM.These has a family consisting of his wife, a small child of 3years and himself and he pays a monthly rent of Rs 2000/-PM in a downtown part of the city.
He owns a two wheeler (a motorcycle) and his monthly petrol expenses comes to Rs 1000/-plus His monthly grocery expense is also Rs 1000/-.The way he manages all these expenses yet he lives comfortably is really worth emulating.
He uses his credit card only for his petrol expenses and monthly grocery purchases from the supermarket (only once a month). He budgets these expenses in such a way that they do not exceed Rs 2000/- PM.These expenses he spends through his credit card and makes it a point to repay them immediately through cheque as soon as he gets his salary and adhering to the 45 days repayment cycle. Hence the Rs 2000/- is always in rotation.
Now he pays his rent for Rs 2000/- PM and he still has enough money for his petrol plus groceries plus for other extra expenses. Hence use of credit cards calls for careful planning.
Care also has to be taken to prevent misuse of your credit card. Mainly it would be a good idea to memorise and deface the three-digit number added to your credit card number in the back of your credit card adjacent to your signature. That number is the key number used for all the internet/purchase transactions. It is known as CVV (Credit Verification Value).
The CVV is the key number, which is used, in online shopping in the net. There are many cases of teenage children who have been influenced by net porn and have taken their parents credit card and have fed in the CVV for online paid porn. This has resulted in whopping credit card bills for the parents.We have to be careful in disclosing our credit card details on the net. Care should also be taken to immediately take back your credit card after a transaction either for petrol, supermarket or any other in order to prevent its duplication.
There have been cases where in some unscrupulous employees in hotels, petrol pumps and supermarkets have duplicated the credit card details or unsuspecting customers and have used them in ATMs to withdraw money. They have been using small machine imported from abroad to duplicate credit cards, which have been used by them to withdraw the money.
While using the ATMs for withdrawal purpose we should always remember to take back our Credit/Debit cards. In case your credit/debit cards have been misplaced /stolen or not traceable then one should immediately notify the card provider to block the card so that it is not being misused. The card provider will never the less charge you for the amounts withdrawn but will block the card from further misuse.
One should not also not keep the ATM PIN number along with the credit/debit card but should memorise the same and keep the details in a safe place away from the Credit/Debit Card. It would be advisable to change your ATM PIN at an ATM, which has the facility to do so with the PIN number you are familiar with.
Due to the proliferation of credit cards the consumerism has increased in the society. The Mall culture has come into existence and with the BPO boom and availability of consumer durables in easy installments everyone seems to have ready cash nowadays and they are ready to splurge.
You find lots of youngsters hanging out at Malls, coffee shops having modern gadgets like ipods, MP3 players hi-fi mobile phones, hi-fi Bikes, modern cars, good dresses etc.
Even you find the Middle class, which never dreamt of owning cars now own one. These luxury items, which were once beyond the reach of common man, have now become omnipresent. The boom in IT sector is also responsible to this with unnaturally high income these people do not bat an eylid in spending. Thus in order to keep pace with them the common man resorts to credit cards.
People live for the day nowadays and do not practice the traditionally olden day rules of saving for the rainy day.
There is nothing wrong in spending per se but one has to use credit cards with good financial discipline and maturity. One should also concentrate on savings because of the uncertainties of life and one should also be prepared to live like a pauper as well as a rich man. The modern generation used to all the goodies cracks and wilts under pressure and ultimately takes refuge in godmen, psychiatrists etc.
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