Spending Via Credit Cards: High Interest Rates Demand Caution, Say Experts

Using credit cards is often considered to be risky - not just because of the high interest rates but also because people often believe that they lead to overspending, and make them splurge unnecessarily. In fact these days, banks themselves call people to issue 'life-time free' credit cards. The offers are tempting and people often take cards, thinking it is lucrative to get access to money at their disposal, without actually having the money in their accounts. Also, the grace period of 45-50 days, which credit cards offer is another reason that makes people opt for these cards. But one needs to be cautious when applying for a credit card, because he/she may not realise it but it may actually lead them into a debt trap.

Financial experts suggest that before taking a credit card, people should ask themselves and analyse whether they actually need one or not.

Also, these days, there are many e-wallets available. Money transfer through digital platforms is easy. There are many attractive cashback offers available on these platforms. So is it really worth it to have a credit card in today's time?

"A credit card provides you with an option for a short-term credit that can be used in case of emergencies. Also, if credit card balances are paid within the grace period, it helps in building one's credit score, thus leading to future possibilities of getting loans on favorable terms," said Rahul Agarwal, Director Wealth Discovery/EZ Wealth.

Below is a payment schedule for a typical credit card loan:
Suppose you need cash urgently and have withdrawn cash of Rs. 40,000 through your card and plan on paying within 12 months.
Interest Rate per annum: 36%
Interest Rate per month: 3%
Equated Monthly Installments (EMI): Rs 4,019
Processing Fee: Rs 400
Processing Fee + GST: Rs 472
Your loanrepayment Schedule will be as below:
 

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