You may have to spend heavily in excess of credit card limit.Image Credit source: gemini
Markets are decorated for Diwali, there is such a flood of offers and discounts on online platforms that it is becoming difficult to control the mind. Amidst this glitz, the excitement of shopping is also at its peak. But this enthusiasm often pushes us into financial difficulties, which we realize later. We are talking about excessive use of credit cards. It is important to celebrate Diwali, but it is also important to be careful that this happiness does not turn into debt in the coming months.
Don’t be burdened with heavy interest
When plastic money i.e. credit card is in hand, the courage to spend increases. We often go beyond the budget with the thought of ‘we will see later’. But this may prove to be an expensive deal. Financial experts warn that overspending on credit cards can result in huge annual interest rates ranging from 12 percent to 45 percent. This interest is like a maze from which it becomes difficult to get out.
If for some reason you are not able to pay the bill in full on time, not only is a heavy penalty imposed, but interest also gets added on the outstanding amount. The biggest and long-term damage is to your credit profile. When you repeatedly make purchases up to your card’s full limit, your ‘Credit Utilization Ratio’ (CUR) increases. This directly hurts your CIBIL score. A weak CIBIL score can become the biggest hurdle for you in the future in getting a home loan or any other important loan.
‘No-cost EMI’ is also an illusion’
During the festive season, the lure of ‘no-cost EMI’ i.e. interest-free installments is visible everywhere. This option seems very tempting while purchasing expensive items like mobile, fridge or TV. But, according to experts, this is often an illusion. In many cases, these offers include processing fees or other hidden charges, which ultimately increase the actual cost of the product. The customer feels that he is not paying interest, but the company or bank collects it in the name of some other fee.
Similarly, during this season, banks themselves offer to increase your credit limit by calling you or sending notifications on the app. This may seem like an honor, but it’s actually a way to encourage you to spend more. The increased limit means an increased risk of getting trapped in a deep debt trap. Accepting such offers without thinking can land you in long term debt crisis.
How to celebrate Diwali without debt?
The best way to avoid this financial trap is ‘Smart Festive Budgeting’. Before leaving for shopping, decide on a budget and stick to it strictly. Decide what is really necessary to buy and what is being bought just because of the ‘offer’.
Try to use UPI or debit card for purchases as far as possible. With this you will be able to spend only as much as is available in your bank account. If you have to use a credit card, take advantage of reward points and take special care of your billing cycle dates, so that there is not a delay in payment even by a day.