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.