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Credit Cards – Boon or Curse?

Are credit cards a BOON? – YES.
Are credit cards a CURSE? – YES.

You may be surprised reading this answer to these questions appearing rather simple. But the exercise of this article is to compare the advantages and drawbacks of credit cards after understanding the issues relating to it and finally, deciding where the truth lies.

Yes, I am not here as any marketing person to sell any credit card. I will limit the discussion to understanding the basics of credit cards only!

Credit Cards

A credit card is a payment card issued by a bank to its user - a cardholder - a customer whose account has been approved. Its conventional size is 86x54 mm, having the front showing details of the bank and the card-holder, while the back has card security code (CVV) and a magnetic strip with the signature strip.

Merchants, restaurants, petrol pumps and many others accept them against their bill. The bank issues a bill stating expenses incurred every month and you have to pay the said amount within the fixed grace period.

If you fail to pay this before the given due date, the bank charges interest. The issuing bank also charges fees on –
    late and overdue payments,
    over limit fee on exceeding the credit limit,
    returned cheque fee,
    service charge on phone mode payment,
    cash advance fee,
    and annual or monthly membership fee.

Now we all know at least the basics of credit cards and their usefulness.

Why is a credit card good?

    The main advantage is freedom from carrying cash!
    The convenience to carry a small size card.
    You can do any financial transaction without worrying about the balance on hand.
    You get offers of concessions in certain shopping.
    Some companies offer enhanced product warranty, travel medical insurance, loss or damage in transit of new purchases, frequent flyer points, rental car insurance and discount schemes.

So what is the problem then?

    It weakens the self-regulation. The consumer is likely to be tempted to spend more money because they do not experience the pain of payment.
    Life-partner or friend instigate for unwanted costly shopping, which credit card can do without letting know the burden. The mall shopping for costly items falls under this head. Costly camera or costly antique items and similar big shopping are done.
    Strangely enough, the credit card use may even lead to more consumption of food and drinks while in restaurants!
    Charge-offs: When a card holder declares his/her inability to pay the highly spent amount, the bank manages to get the sum by law-suits or by outside collection agency. This is the worth avoiding experience.
    Their typical targets are the college students and newly employed youth, who are already in debt and less experienced in managing their finance. They spend foolishly and then in spite of overtime and hard work, find it difficult to repay.

Well, this much is enough to set the ground.

Credit cards are certainly a boon, but there is a trap especially for youth. If you are not vigilant, a single large expense can add to your great worry of repayment. They are said to be two-edged swords; if you are not prudent in keeping watch on your expenses with reference to your own income, it may lead to a disaster difficult to handle.

Yes, Rahul Desai from Pune (my son) rightly said you can learn only by making mistake yourself! You do over-spend, pay heavy interest, find worry and difficulty of settling the dues, and face the result to learn a life lesson! I conducted a brief survey on Facebook and this is what a few of my friends had to say: (Please click on the “Comments” link to expand the text.)

CREDIT CARDS: Advantages and Drawbacks.MY Experiences: Good and bad!I invite all my Facebook friends to write a few...
Posted by Bharatchandra M Desai on Thursday, January 14, 2016

Multiple Banks' Cards: Nirav Shah, a retail business owner from Valsad (my niece's husband) warns against this. Over-spending on one credit card is often repaid by the money from the other new card and that due is paid by a third bank card! This a most dangerous vicious circle and the low-income young person must avoid this.

A survey in Britain shows that the youth without credit card stops shopping when his cash and bank balance ends, but one with one or more credit cards goes on buying without any limit. Understandable. However, their other finding shows that if the same guy has a credit card in hand, he will buy seven times more materials than without card. 50% of bankrupts are youth below thirty years!

In the USA, the banks and credit card sellers throw credit cards to all and any youth between 18-20 years. Then the young man starts shopping without bothering about his income shown limit. He does not bother about the actual price of the item he buys! The distance between his real income based spending limit and purchasing lifestyle becomes enormous. When he realizes the tension of the payment, it is too late.

The purpose of this story-telling is to safeguard against unscrupulous use of a very handy and useful instrument of financial movement – a credit card! Make controlled and rational use of a credit card and it is a boon. Otherwise, it is a curse!

Credit card teaches us a great philosophy of life – you have to live a life of discipline, control and awareness about the path ahead, or you end-up being nowhere.

Do you have a credit card?

What is your experience?

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  1. Dear Pappa,

    It's a good compilation of points related to credit cards. Like you quoted my opinion, one must fall into the pit to realise what mess she/he has got into. And having used (and misused) credit cards for several years now, my personal opinion is there's no such thing as "controlled and rational use of a credit card". If you have a credit card and if you use it, you're bound to overspend, or buy things/services you could avoid. If you knew how to make a disciplined use of the credit card, you'd instead use the liquidity available in your bank account and limit the expenses accordingly. Why need a credit card?

    In this online shopping era of more frequent and more counts of financial transactions, credit cards come handy and often seem like not optional. However, I strongly feel they are optional. All online shopping portals offer 'cash on delivery' options and if not, there's always an option of using a Debit Card instead of Credit Card. The moment you're out of cash, your expenses are brought to a force-stop. The problem arises when there's a Credit Card (with an unreasonable limit) to use as a backup and tosses all your financial planning (if any)!

    If there was any way of making a 'restricting' usage of credit cards, I would really like to know about it.


  2. Very true, Pappa. "Self discipline and brake imposed by the partner" play vital role in controlling the credit card usage.


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