Reasons for using credit cards wisely
The way you handle money affects the economy. Every year, your savings decrease and your debt increases. In 2022–2023, the net household savings rate as a percentage of GDP decreases to 5.3%. This is less than the 7.3% from the same time last year. In November 2023, the Reserve Bank of India clamped down on your excessive borrowing via unsecured personal loans as a result of your excessive borrowing. The surge in unsecured personal loans eventually decreased, according to the RBI. Even so, the total personal loan growth was at 18.1% in February 2024, slightly lower than the preceding months.
Your credit card is one of the main sources of personal loans. They continue to attract new debtors. The overall amount of credit card debt that is owed is still growing by more than 30%. Since credit cards became a component of the payment system, there has been a huge growth in usage owing to their simplicity of use. The amount of credit card transactions increased by 34% and their value by 25.7% in February 2024. The number of outstanding credit cards in banks topped the ten-crore threshold. Media projections state that in 2023, there will be 125 crore credit cards in circulation worldwide.
Credit card use has been made easier by unified payment interfaces, or UPI-enabled payment systems. Making payments using a QR code on your credit card has never been simpler. That means you are borrowing money for even small payments. The second crucial factor is that banks know much about you nowadays thanks to your digital footprint. Building a solid credit history is possible when you pay your credit card bills on time. Borrowing money from clients makes banks pleased since it may lead to higher interest rates down the road. You pay an interest rate of 40% to 50% on the outstanding amount of your credit cards if you do not pay them off in full. Such clients, who extend credit and pay higher interest rates, are highly valued by banks.
One in five credit card users have more than four or five credit cards, according to a poll conducted among users of the financial website Anq. Nearly two-thirds of the respondents picked credit cards based on the incentive programs. In addition, banks have a referral scheme. They reward you for suggesting a buddy.
Credit cards represent expensive borrowing. The 45-day interest-free term is convenient. But, failing to make bill payments on time might lead to expensive debt. The money you borrow should ideally be used toward the construction of assets. Thus, you may take out a loan to purchase a home or a business. A house loan has the lowest interest rate. It is the highest on a credit card bill. The interest rate on any personal loan associated with your credit card is greater than that of a loan secured by a valuable asset such as real estate, gold, or a home.
You need to quit using credit cards right away if your balances are excessive. Take a personal loan on your credit card or a top-up loan on your current house loan. Your credit card debt is payable. Thus, if you can afford to pay back the loan on time, a top-up loan is a great way to get extra cash for big-ticket items.
Managing expenditures
Your credit cards provide ease in payment.It should only be used as a temporary fix. In the end, you need to make sure that your spending stays inside your budget. Your priority payment source should be your long-term retirement objectives, not credit card debt. If you don’t control your spending or rein in your shopping addiction, you’ll find yourself borrowing money on a frequent basis. When you maintain servicing several debts, you scarcely develop money for yourself. You need to know how much money is reasonable to spend on expensive loans. Use a credit card for borrowing only when you have sufficient accounts receivable. That holds true for both those with salaries and those without. Utilize your credit cards, get points or incentives, and swiftly pay your payments.
