A while ago I wrote an article on needs v/s wants wherein I talked that in this fast paced world of consumerism we are increasingly concentrating on our wants viz a viz our needs. One of the biggest reasons for such a change is that we no more feel the pain of paying. You must be wondering, what is pain of paying? Imagine you are out for shopping and you come across a very smart watch. The moment you see it you feel like buying it as this was something you wanted for long. Now you have three options to pay for it i.e. Cash, Debit Card and Credit Card.
Which one would you choose? Anyone, how does it matter; Right!!! But in reality most of us would prefer paying through credit card as it hurts the least. Just think about it; would you buy the same watch if you had to pay entirely through cash??? The chances are 50-50!!!! You would think before buying – whether you need it or not. This is what you call the pain of paying. A lot of research has been conducted and it has been observed that people feel differently about payments when there is a time gap between “a product is bought and is paid for”. In the above example when you would pay through cash; it would hurt the most as something goes out of your pocket instantly. But payments through credit card alters the time of pain as nothing goes out immediately and hence induces you to buy more whether you need it or not.
Credit Card – The Debt Monster
Someone quoted “Credit Card makes us think we have more money than we actually do”. That’s where it all starts. Over a period of time when we get accustomed to using credit cards we forget that we are spending on credit or buying things on credit for which we will have to make the payments some-day. A little debt tempts us to spend a little more and with time we get used to it. And next when we realise; it becomes a lot debt from a little debt.
The trap does not end here. While we make purchases through credit card what we forget is that every debt comes with its own price which is called as “interest”. If you make less payment or delay the payment on the due date; you are required to pay interest at the rates which may vary from as high as 35% p.a. to 47% p.a. Huge it is!!!! It hurts in the long run.
Future money becomes the slave of today’s debt
By postponing the payment for tomorrow; what we actually do is we commit our future income in advance to our present debts; the debts which arose out of our impulsive purchases through credit cards. What may happen eventually is that to pay off the credit card debts (inclusive of interest) we might have to compromise on our needs for tomorrow whether it is replacing a car or moving to a new house or planning for your or your kid’s higher education or your retirement may be. Your life choices may be compromised.
Some Statistics
Most of the Americans (citizens of the world’s most powerful economy) are under huge debt. As per the latest report average US household owes $15993(INR 9.5 lacs). Shocking, the only reason is that they hugely rely on credit cards and spend more than they earn.
Credit Card is a good innovation to be used in times of need or emergencies when you fall short of money. Reckless or irresponsible use of credit cards may create pitfalls for you and may leave you with fewer choices to make.
USE IT, DONOT MISUSE IT
