HOW MULTIPLE CREDIT CARDS HARM FINANCIAL MANAGEMENT
In our previous topic, we have covered on Credit card and how it harms Financial Management.
In the interest of time, with so many financial planning’s for our clients, we found that credit card was the root cause of debts. That too holding multiple credit cards.
On average, a credit card holder holds 3-4 cards and every card holds an EMI for a specific amount.
Come, let’s take you all on the journey of finding the loophole which makes you and me into the trap.
MULTIPLE CREDIT CARDS – THE REAL DEBT TRAP:
We have shared in our previous topics on the debt trap. The debt trap majorly starts with a credit card.
The basics of credit card and its trap are well explained in our previous topic on the credit card. Please have a look at it, before upgrading yourselves with this topic.
Why we keep on say credit card is the real debt trap?
Initially, salaried persons can buy any products like mobile and appliances through credit cards. This is the starting point of the debt zone.
A survey says Salaried Employees are holding 50% of debts more than self-employed and business people.
More than personal loans, Credit card EMI’s are more feasible for any range of salaried people. As banks provide credit cards once you open a salary account.
Credit cards have more interest rates than personal loans. For products like appliance, mobiles, no bank will provide loans.
WHAT IS THE STARTING POINT FOR CREDIT CARD RELATED DEBTS:
This can be categorized into two reasons,
1. Overspending than their mean.
2. Instant Gratification.
Let us take you all through a real situation, where most of us would be the part.
OVER SPENDING THAN THEIR MEAN:
The first thing we have adopted is, society believes, “People who have credit cards are upper-middle-class”. This is the biggest myth which runs through our mind.
This makes us pull the Credit card out of the wallet every time on purchase. This happens because of many factors. Some of them are,
· To redeem annual fees, you should shop for fixed lakhs a year.
· Cashback offers.
· Reward points.
· Easy EMI option.
· 45 days payment duration, if purchased on 1st day of the billing cycle.
These are the reasons people become unaware of their expenditure made using a credit card. So, they tend to spend more than their mean, ending up with no clue to pay when the bill knocks on the door. So, ultimately they have to pay 24-60% interest
We have discussed delayed gratification in most of our financial management topics. So, this is just the opposite of it. Instant gratification occurs when we fail to control your mind or emotion.
Whenever we go to any showroom, where many electronic gadgets or appliances have to showcase. We always tend to be attracted by its appearance.
Have you ever been to a home appliance showroom? If so, you can easily travel with me.
When we go inside these showrooms with an idea of buying a 32 inch TV with few features which suit our pocket. Unfortunately, we will be attracted by 48 inches or larger size TV with more features like 4K, completely smart, etc.
The salespeople over there also, make us live in a world with the TV in our home, this imagination will lead to the purchaser instantly. In this time, when the wallet doesn’t support, the credit card does with the Easy EMI option.
So, Instant gratification can be another source of us being under the credit card trap.
WHY PEOPLE USE MULTIPLE CREDIT CARD:
There is a passion which has seen in people the recent time of having multiple EMI and credit card.
Even with my friend’s circle, it was a time, when all of them were craze about having many credit cards.
Eventually, after a few years, they all were having huge debt, which they closed with personal loans.
The reasons behind holding multiple cards,
· Credit limit will be less with few cards. E.g. SBI cards.
· Craze over having more number of cards as fashion.
· When used the complete limit over a card as EMI.
· Cashback offers.
There might be many other reasons too, which will be changing between individuals. These are the major reason, which checked with many multi credit cardholders.
MULTIPLE CREDIT CARD AND FINANCIAL MANAGEMENT:
So, let us move into the transaction of how multiple credit cards can harm your financial management.
· High and uncontrolled debts.
· Instant gratification.
· Becoming Spendaholic.
· No savings and Investments.
· Improper Budget Management.
· Goals without any path.
· All the appliances and liabilities will be by debts.
· Seems to be living like rich but actually will become poor if cash flow stops.
· This keeps you in the trap of not getting out of debt. Just paying the minimum payment and paying 24%-60% interest Per annum on the remaining amount.
If you are one, who is under this trap,
· Pledge the Golds you have and close all the debt of credit card.
· If you don’t have enough gold, take a personal loan to close credit card debts. We don’t promote any sort of loan. In fact, personal loan interest rates are comparatively low than credit cards.
· Final one, once you close credit card debts with the above two methods. Kindly close all your credit card and hand it over to the respective banks.
· Live your life debt-free and concentrate on wealth creation.
CONCLUSION – MULTIPLE CREDIT CARDS:
· Using multiple credit cards is completely harmful to your financial management.
· Avoid using credit cards further and shift your expenses via cash.
· Cash is the real material, which can hurt your heart when it goes out of your hand. It will mark a boundary on your spending.