In the recent years, the use of credit cards in India has skyrocketed. The RBI reports that in August 2018, there were more than 4.1 crore active credit card accounts in India, up from just over 2.7 crore in October 2016. These figures demonstrate how Indians are making a shift in their financial priorities.
However, most applicants for credit cards, particularly those in India, are frequently so swayed by the benefits that they neglect to consider the drawbacks. In this article we will highlight some of the major disadvantages of credit cards that you should never overlook,
1. The unending trap of ‘min due amount’
The minimum due amount that is shown at the top of a bill statement is a credit card’s biggest drawback. Many people who use credit cards are tricked into believing that the minimum payment is the full amount they must make when, in reality, it is just the least amount necessary to keep your access to credit facilities. Customers end up spending more money since they think their bill is little as a result, which results in interest being charged on their balance, which over time could grow to an enormous and unmanageable amount.
2. The complicated ‘hidden costs’
At first glance, credit cards seem basic and uncomplicated, but they can carry a lot of extra fees that add up over time. Taxes and costs associated with credit cards include processing charges, late payment charges, membership fees, and renewal charges. Missing a payment on your card could incur a fee, and making many late payments could even result in a reduction in your credit limit, all of which would harm your credit score and future credit prospects.
3. Hefty interest rates
If you don’t pay your bills in full by the due date, the balance is carried forward and interest is added. After the interest-free period has passed, purchases purchased after that point will accrue this interest over time. The typical credit card interest rate is 3% each month, which works out to 36% annually, which is extremely hefty.
4. Puts you an increasing risk of online frauds
You could become a victim of credit card fraud, despite the fact that it is not particularly widespread. With the development of technology, it is now easy to copy a card and access private data, allowing another person or organisation to use your card for purchases. If you see any purchases on your statements that seem questionable, carefully examine them, and report them to the bank right away. In an ideal situation of theft and fraud, the banks generally waive charges, so you won’t be responsible for any purchases made by the thief.
5. You tend to ‘overspend’ with a credit card
There is a good probability that once you have a credit card, you will start spending excessively. That has been demonstrated to be true, not a myth. When you don’t have a credit card, you spend on your essentials; however, once you have, you start spending significantly more on your luxuries. That sends you into a never-ending debt spiral.