Credit Card Outstanding Hit Rs 546 Billion; Know More To Avoid Credit Trap

Mumbai: In disturbing news for prospective credit card holders, banks are tightening the issuing norms as the number of total outstanding cards at end of December 2018 stood at over 4 crores.

1. What has raised the alarm bells for banks is that transactions worth Rs 546.35 billion were conducted through them just in that month alone.

2. According to the Reserve Bank of India data, the volume of point-of-sale (POS) transactions as a share of total cards outstanding rose to 54.5 per cent in December 2018 from 47.4 per cent in December 2017.

3. Credit card usage in India is steadily increasing, thanks to interest- free credit of about 45 days, ease of doing transactions, discounts and cash back offers, and the digital push by the government. However, credit card spending comes with the risk of overspending.

4. If you fall short of funds, credit cards offer you the option of paying only the minimum amount due, which is much lower than the total bill. However, paying up only the minimum amount due consistently can land you in a debt trap.

Experts advise:

5. Paying up the minimum amount due can help you avoid paying late payment fee, which is usually a flat fee between Rs 100 and Rs 1,000, depending on the amount and your card provider, but interest on the outstanding bill amount will not be waived off.

6. If you don’t pay up the minimum amount due, additional late payment fees, interest and other charges may be levied. There is also a possibility of suspension of your card once the dues cross the credit limit allowed on your card. Besides, not paying even the minimum amount due can severely affect your creditworthiness and credit score, which in turn will make it tough for you to get a loan in future.

It is always necessary to maintain a good credit score: 

7. A credit score is a numerical expression based on analysis of a person’s credit log and reflects the creditworthiness of an individual.

8. It is very important that you maintain a high score in order to avail benefits such as bank loans or personal loans. Any activity which involves borrowings from the bank may be dented if credit bureaus score you poorly based on your usage.

Never withdraw cash using a credit card:

9. This is probably the most important point out of the entire lot. Individuals should note that using a credit card to withdraw cash is an extremely expensive affair and the rate of interest is significantly higher than normal purchases made online or at PoS machines.

10. Withdrawing cash is not viewed as a positive action by both banks and credit bureaus. Therefore, you should never opt to withdraw cash using credit cards if you want to maintain a good credit score.