The Hindu Business Line : Swipe with caution

Plastic money has gone a long way in re-moulding consumer buying behaviour. With a credit card, you can buy whatever you want without having to pay then and there. Making money-less purchases has considerably altered people's spending behaviour, especially of the middle-class. Accepted across a wide category of outlets, the credit card's USP is that it is convenient, and also offers the flexibility of paying a small amount and the rest later (with the oft-ignored interest). Today, holding multiple cards has become common. Credit-card issuers, with hard-selling promos and freebies, often lure you to go in for new cards and dangle the carrot of migrating from one type to another. And soon, you may find yourself in the platinum or gold club, for the sake of winning special gifts! And, then, comes the offer for enhancing your credit limit and, with it, a lot of trouble. As you do not count out money, you are tempted to spend more, often overshooting the credit limit.

Pay time can be devastating. If you fail to clear the entire balance, the credit-card issuer charges an interest, any where between 2.5 per cent and 2.95 per cent from the date of your purchase, depending on the terms of the card. Consider the plight of a friend, who recently bought a dream house. Overshooting the budget, he had used up all the resources, and had no fall-back for any emergencies. For all the unexpected expenditure, he swiped a couple of credit cards; soon enough they were fully loaded. Then, month after month, he took recourse to the revolving credit, at 2.95 per cent a throw, till a maturing insurance policy, bailed him out.

The plastic card

It is best not to have multiple credit cards. Second, avoid increasing the credit limit unless it is really warranted. In the event of losing your card, the higher credit limit would only increase your liability unless you inform the card-issuer on time. Further, what is more painful is the heavy charges levied on cash withdrawals. If you withdraw cash using your credit card, you may end up paying close to 5.25 per cent on the amount as transaction cost (one-time charge of 2.5 per cent and 2.95 per cent as interest). If you have taken additional cards for your dependants, such as children, ensure that the credit limit is controlled based on your risk appetite.

Protect your liability

Always make it a point to store your card number in your mobile along with the telephone numbers of the issuing company. This will come in handy in the event of your cards being lost.

Try and enjoy the benefits that come with the card without getting trapped in debt.

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