Credit cards are used by a majority of people across the world. They have evolved into a necessary part of everyday life without a doubt. They can be used to make purchases when you don't have enough cash on hand, or to buy something from a remote merchant without having to wait for a reality check to be sent. If you're debating whether to obtain credit cards, weigh the benefits and drawbacks and decide whether you really need them. They are, indeed, quite convenient to use. The majority of shops take credit cards, so you won't need to stop by an ATM to get cash before heading out. If you only have cash, you can only make in-person transactions unless you buy money orders.
Although Credit cards come with plenty of benefits and convenience they are also a major reason behind the cause of debt. There are various hidden charges and high interest on a number of transactions, utilization, etc. Below we are highlighting 3 important cases you should avoid as they attract high interest to credit card payments.
Any cash withdrawal from a credit card comes with a fixed fee. This can be as much as 2.5% of the withdrawn amount. Withdrawals are subject to a monthly interest rate of 2-4%. Credit cardholders might not be aware of the fact that in contrast to purchases made at merchant premises, the interest rate on cash withdrawals begins on the first day. Don't make too many little withdrawals, either. This might result in large fixed costs. Credit cards are good to go with digital transactions.
Utilizing Full Limit
A credit card allows the user to spend money whenever they choose. With an easy transaction, goods and services that were before out of your reach become available to you easily. However, if you take up a big percentage of your authorized credit limit, your credit score suffers. When you spend more, you not only damage your credit score but also attract interest rates over your spendings, which you will have to pay on the due date. High credit consumption shows the person as credit hungry, with a possible increased risk of default. This may make it harder for you to get more loan facilities in the near future. Stick to a budget, doing this will help you to keep your costs under control.
Paying only minimum due
Remember this, lenders (Credit cards) want you to use the credit card as much as you could, so, they can earn interest on your spendings. It's a simple calculation, the more you spend, the more they earn. If you just pay the minimum amount required, you will be charged 2-4% interest on the outstanding balance. This is the most costly type of debt, averaging 34-48% every year. Any further expenditures incur interest from the start, and you wind yourself paying exorbitant interest charges. Control your spending and only spend what you can comfortably return in full at the end of the month. If you can't, consider paying in EMIs, which have a reduced interest rate.