Financial perks lure credit card users, often resulting in unintentional higher costs due to card features and benefits
In recent times, the growing burden of credit card dues has become a pressing concern for many households in India, with the total outstanding debt exceeding ₹2.5 lakh crore this year. This mounting debt has led to cardholders delaying important purchases, cancelling family trips, and even postponing medical treatments due to unexpectedly large credit card bills.
The allure of credit card rewards, such as cashback, vouchers, and holidays, often masks the true cost of these financial instruments. Behavioural economists have shown that paying with plastic can lead to increased spending compared to paying with cash, as the immediate cost can feel small, making the long-term burden invisible until it is too late.
The cost of credit card rewards often far exceeds the benefits for most people, when considering annual fees, interest, and late charges. These charges can wipe out any perceived benefits from rewards, making it essential for consumers to carefully consider the true cost of their credit card usage.
The design of credit cards can also contribute to overspending. Milestone bonuses, for instance, can encourage consumers to buy items they do not need in order to reach a spending target. More than half of reward card users admit to spending extra to unlock these milestone bonuses. This form of overspending can lead to a vicious cycle, as the growing credit card balances and interest can snowball, leading some cardholders to borrow more to stay afloat.
The stress caused by credit card debt can lead to emotional tension at home, affecting personal relationships and overall well-being. Simplifying one's credit card usage by having only one no-fee card for emergencies is a good practice. Treating a credit card like a debit card, only spending what can be paid off at the end of the cycle, is a good way to avoid revolving balances at high interest.
It is important to remember that banks do not give away holidays, cashback, or vouchers as gifts; they aim to get consumers to spend more and accrue interest. The best reward from a credit card is peace of mind, which comes from staying free of debt.
In conclusion, while credit card rewards can seem attractive, it is crucial for consumers to be aware of the hidden costs and potential pitfalls associated with their use. By adopting a mindful approach to credit card usage and avoiding overspending, individuals can maintain financial stability and reap the true benefits of these financial instruments.
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