Finance is like the weather; if you know about it you can handle it easily. And one such aspect of finance is the use of credit cards and debit cards. Credit cards are a wonderful instrument for your financial journey. And to ensure they continue to be helpful, there is an imperative need to be educated about the ins and outs of the credit card world.
We had the opportunity to have quite an informative conversation with Mr. Prithvi Chandrasekhar, President, Consumer Finance at InCred, where he furnished us with intel about the most basic of credit cards day-to-day.
When asked about the most basic of things to keep in mind, before a person decides to dive head first into the world of credit cards, Mr. Prithvi said,
Stay up to date with your payments. Use a credit card only to manage your purchases, do not use it to manage your debts. There are many people who use a credit card to go to the shop and buy groceries or home renovation supplies and whatever it is. That’s perfectly alright.
He continued, “When you have a credit card that you are using to repay another credit card or are paying your EMIs or other loans using your credit card is when a credit card stops being something good and starts being something bad.”
He also said that credit cards are, “the most stupid thing” a person can do to manage debt, and also that we must make sure that we are using a credit card for convenience and not to “manage debt”.
We further asked him about the ways one can try to walk the fine line between stupidity and foolishness, when it comes to credit cards. To which he replied by saying,
You can make two types of payments using a credit card. You can borrow the whole balance or borrow 5% of the amount you borrowed called the minimum payment.
The interest for borrowing the whole balance is 0% (if paid in time). If you are unable to pay the total borrowed amount before the due date, you can pay the minimum payment which has an interest of 3%, if we talk about credit cards. But if the same thing happens next month, then it’s time to repackage the debt as a personal loan.”
Credit card management is mostly about managing credit card debt. It is a common practice to convert credit card debt into EMIs and seeking more insight into the same we asked him about the process of converting credit card debts into EMIs.
Enlightening on the same he said, “It can be done easily. It is more suitable when we know that we cannot produce the amount to be paid on a large debt before the due date. When converting credit card debt into EMI, what they do is give you a loan at a lower interest for a whole year and then they take the amount and make it a loan for a particular period of time, which you have to repay in installments.” Further he said, “pay intelligently, make it a loan of a long period instead of credit of a short term.”
Further when asked about how long balance can be carried for, he remarked, “In practice you can carry the balance forever” he further alluded to the fact that credit cards are not a big deal in India, but on an average, a person in the US possesses 6 credit cards, which also leads them into a “debt trap”.
Using a credit card wisely is extremely important, it not only helps us in being financially stable, but also saves us from the much expensive debt traps. Keeping a track of a few basic things can make our financial lives safe and easy.
