Credit Card Debt Traps

Using credit cards for making your payments and for shopping is a great convenience, and life without credit cards has become unthinkable for most of us. Most credit card companies offer flexi pay plans that allow you to just pay a small percentage of the total amount due each month, and carry forward the remaining amount to be paid in future months. This sounds like a very attractive proposition, offering you the benefit of buying what you want now, and paying for it later at your convenience. In fact that’s exactly the way credit card companies promote this facility. However, all’s not well with this scheme of things, and you should be aware of the pitfalls in using this facility, which unless you do so sparingly, can lead you into a debt trap. Let’s see how.

Suppose you make a purchase of $1,000 on your credit card, and the company requires you to pay just 5% of the outstanding amount, you are happy because you just have to pay only $50 on a purchase of $1,000. The credit card company is happier because it’s going to fleece you with a high interest of up to 2 or 3 percent per month.

Matters can go out of hand if you are not too careful. For example, if you are tempted to make another purchase of $1,000 again the next month, your total debt will rise to $2,000. At an interest rate of 3%, you will also pay an interest of $30 per month. If you’re still wondering where the debt trap comes in, all that you have to do is to repeat this for a few more months, and your monthly installment itself will come to the original purchase figure, not to speak of the interest. This is something that routinely happens to scores of people, and is not just a figment of imagination. So you need to be really careful not to get into such a trap. How can you avoid getting into one?

The easiest way is to avoid postponing your credit card payments, even if the company allows it. Make it a point to pay up all credit card dues as soon as they fall due. If you feel you can’t do that, consider postponing the purchase or expense unless it is absolutely essential. Making payment up front is the smartest way you can use credit cards, because you do get a credit of a few days to a month, at zero percent interest. On the other hand, if you accumulate credit, all your future purchases will attract interest from the date of your purchase. In effect this would result in your losing the facility of interest free credit that you would otherwise enjoy. []Any Card Credit:

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