6 mistakes in credit card use that may lead to debt trap

The use of credit cards is steadily increasing day by day. While credit cards can make life easy, careless usage can easily turn them into a burden.

A small lapse in financial discipline may lead you into a debt trap. Delayed bill payments, overspending, reliance on multiple cards or withdrawing cash are some of the main reasons debt escalates rapidly. Prudent usage is therefore essential.

For some simple mistakes the credit card users fell in trap. Here are six common mistakes often made by credit card users.

According to a report by the central bank, credit cards in Bangladesh are most frequently used across 11 broad categories. These include departmental stores, retail shopping, payment of various service bills, cash withdrawals, medicines and pharmacies, clothing purchases, money transfers, transport expenses, various business and professional services and payment of government service fees.

Credit card services were first introduced in Bangladesh in 1997 by the then ANZ Grindlays Bank (now Standard Chartered Bank). At present, around 40 banks in the country offer credit card facilities.

Spending beyond budget

Tempted by reward points and promotional offers, many cardholders end up spending beyond their financial plan. Experts advise that credit card expenditure should not exceed 30–35 per cent of one’s monthly income. Spending more than this proportion increases financial pressure.

Paying only the minimum amount of due

Paying just the minimum due amount each month results in interest accumulation. Annual interest rates can rise sharply, causing the debt to grow rapidly. It is advisable to pay more than the minimum, as much as your capacity allows.

Relying on multiple cards

Using several cards at once often conceals the actual debt burden, making repayment more complex. Settling one card’s dues by using another is even riskier and should be avoided. 

Delaying bill payments

Late payments incur penalties, reduce your credit score and eliminate interest-free periods. Deadlines must not be ignored under any circumstances.

Withdrawing cash from credit cards

Cash withdrawals from ATMs trigger immediate interest charges and the interest-free facility is forfeited. Unless absolutely necessary, cash withdrawals should be avoided.

Falling for attractive offers

Zero-cost installments or “Buy Now, Pay Later” schemes are not always financially advantageous. Hidden charges and compound interest can increase your debt significantly.