Admit it, you have indulged a lot this sale season. We all have. It is that time of the year which makes you let go off the otherwise, tight reigns on your budget and finances. Perhaps it is the excitement of celebrating Diwali, or just the realization that you will never get a high-end branded product for throw away prices, as you get during the Diwali Sale season.
You may justify the indulgent behaviour with a number of reasons, and no one is going to judge you because, hey, it’s Diwali for everyone! However, the extravaganza can be heavy on your salary-driven pockets.
You do not earn anything extra in the month of Diwali, unless you are lucky enough to get a sizeable Diwali bonus, but you spend a lot more than you usually would, in a month. Many people take to credit cards for Diwali shopping.
Credit cards provide instant liquidity to you, you can buy whatever you want, whenever you want, and apparently without worrying about your bank balance. In fact, the lucrative cash back deals available on select cards is just too good to be true! It seems almost silly to use cash or debit card altogether.
But what happens if you use the credit card but later find yourself in a situation, because you cannot repay the whole sum, next month. Your salary remains the same every month. You already have the basic monthly expenses to take care of, how then will you afford, say an extra Rs. 25,000, as your credit card bill?
Very often, people choose to pay off the minimum amount (usually 3% of the total amount due). But when you keep paying the minimum due amount every month, ignoring the remaining debt amount, you are charged an interest of 3% on this remaining amount, every month, making it 3% x 12 = 36% (or more) annually!
This is an insanely high rate of interest for any instrument of debt. We are likely to get into this debt cycle, due to our inability to pay off the whole amount.
If you have somehow landed yourself in this situation, wherein you now have to pay 36% interest rate on the principle amount, it is advised that you raise a personal loan from your respective bank. The personal loan is charged at 15% annually. This loan will help you repay the credit card loan much more cheaply than any other option.
Come to think of it, you end up paying only half rate of interest on the personal loan, which is much better than paying 36% interest. Taking this personal loan helps you exit the debt cycle you have entered and is easier to pay off.
Use a credit card wisely, make sure you have enough balance in your account for a monthly auto-debit to happen. Try not to succumb to the minimum payment required every month, as more often than not, this is what marks the beginning of a vicious credit card debt cycle.