While credit cards may prove to be one's best friend in times of crisis, they can also turn into one's worst enemy if used recklessly.
“The whole point of credit cards, the way they are rendered most profitable, is that we dig ourselves into debt and stay trapped there forever.” — Brett Williams
Whether you agree with this statement or not, nobody can deny the fact that while credit cards may prove to be one’s best friend in times of crisis, they can also turn into one’s worst enemy if used recklessly. If nothing else, apart from ruining one’s credit score, they can also push someone into a debt trap coming out of which will prove to be a herculean task. No wonder, financial experts have been continuously warning people to be extremely cautious while using credit cards. In other words, those who don’t have money management skills or are not very careful about their finances, should better use debit cards or prepaid cards instead of credit cards. Remember what T. Harv Eker had once said about credit cards – “If you don’t have the money management skills yet, using a debit card will ensure you don’t overspend and rack up debt on a credit card.”
Keeping this in view, here we are taking a look at some types of people who should always avoid using a credit card:
These are the people who spend money extravagantly. Because of their spending pattern, it is very likely that they would be exceeding the limit of their card since they can purchase anything on the go with ease. This would not bode well for them as they would be deemed as credit hungry people by banks and their credit score will reduce. So, when they apply for any credit in the future, there’s a good chance that their application would be rejected.
Therefore, “a person who is a spendthrift and is living beyond his means should never have a credit card. This is because credit card induces one to spend more. It makes credit very easily and readily available. This can be self destructive for someone who lacks financial discipline. Hence persons with extravagant and unaffordable spending habits should not own a credit card,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
2. Undisciplined Bill Payers
Undisciplined bill payers are the people who most often delay or miss their bill payments. “It would, thus, be a risky endeavour for them to have a credit card because once the payment deadline is over, credit cards would invite a high rate of interest in addition to penalty for missing the payment. This would put further burden on the cardholders’ finances. Not only this, it would reflect poorly on their credit report as well and would reduce their credit score considerably,” says Ranjit Punja CEO and Co-Founder, CreditMantri.
According to a recent credit card report by NerdWallet, Americans are overdue on billions in credit card debt (more than $23 billion overdue) and credit card delinquencies are rising fast. The most common reason being – most Americans just forget to make credit card payments on time.
Remember, it is a similar case worldwide, including India. Therefore, you should avoid having a credit card if you are not disciplined with your bill payments.
3. Persons who revolve their credit
Although credit card companies claim that they keep advising their customers to keep clearing the minimum amount due on time and also their entire dues before the due date if they want to avoid any interest, fee or charges. However, one of my banker friends once told me that although this is what bankers advise, but actually they want their customers to revolve their credit card debt because unless they do it, credit card companies won’t be able to make any profit!
Therefore, people who perpetually revolve their available credit should never have a credit card, even if they clear their bills on time. “People of this type often find themselves paying off their credit card bills every month, only to use their card again. Over time, individuals who constantly revolve credit will find themselves paying lesser and lesser every month towards their bill, and accumulate high-interest charges in the bargain. In fact, revolving credit products are severe debt traps for individuals who mismanage credit products,” advises Aditya Kumar, Founder & CEO, Qbera.
4. Ones who use their card to fund their everyday expenses
These types of individuals will often go broke by the end of the month and use his/her credit card to fund everyday expenses. Credit cards attract extremely high-interest rates in the range of 2% to 4% per month (24% to 48% annually). Oftentimes, those using their credit cards to fund everyday expenses, especially when they go broke, will fall into the revolving credit trap and have long-term debt problems.
5. Those who have multiple sources of credit
People having multiple sources of credit in the form of multiple personal loan accounts or credit cards will, besides accumulating debt over a time period, end up being rejected by lenders in the future, which will further impact their credit score. “People having multiple loan/credit accounts are also sometimes forced to make late payments and end up in pretty unpleasant debt situations,” says Kumar. Such people should always avoid credit cards.
6. Very careless persons
People who often forget to keep the credit card back safely after use should also not posses one. By being careless with cash, the downside is limited to the amount you have in your wallet. However, credit card compromise or erroneously disclosing PIN numbers can lead to massive and unimaginable losses. Therefore, persons who are not cautious and careful in their monetary dealings should also not posses a credit card.
7. Who hardly use the card
While overuse of a credit card could be detrimental to your credit score, hardly using the card would ruin its purpose. “Credit card is a great tool to get rewards. If it is not used as much, people won’t be able to utilize their cards to the fullest. In this scenario, it might be better to have a debit card instead as there won’t be any need to track the payments due, if any,” says Punja.
Thus, if you want to have a credit card, then take into consideration all these things before opting for one.