In the midst of this pandemic, if you’re among them who are already feeling the squeeze from credit card debt, adding more to your credit might not be an option.
In the middle of the global pandemic – COVID-19, many people are dealing with a sudden financial crisis, ranging from pay cuts, delay in salary to job loss. Along with the pandemic, the nationwide lockdown has also impacted all. Most people in that state are using their credit cards to help them get through this crisis. However, not using credit cards strategically could land one in a deeper problem.
Even though credit cards are a savior during an emergency, they come with their own costs, risks, and limitations. For instance, one could easily rack up high-interest debt, which can put the cardholder in a more precarious financial situation. With credit cards, one can keep afloat for only so long, as the debt increases with the high-interest rate and eventually it has to be repaid. Hence, credit cards are not a solution to a permanent loss of income, however, for short-term disruption of finances, it can be an accessible way to ride out the storm. In the midst of this pandemic, if you’re among them who are already feeling the squeeze from credit card debt, adding more to your credit might not be an option.
Many people due to lack of income, loss of payment, etc. have started using their credit cards for monthly essentials like paying rent, utility bills, and are taking the additional credit period to settle the amount with the card company. Experts suggest even though it might feel like the right thing to do during a crisis, using such a payment option repetitively can have an adverse impact on one’s finances.
Credit card debt is one of the most expensive as the interest rates charged on credit cards are very high when compared to other types of instant loans. Note that the outstanding balance due on a credit card gets charged at an interest rate of about 36 to 48 per cent per annum, in case the cardholder is unable to repay the credit card bill on time. Even though it varies from bank to bank, for cardholders who fail to repay the minimum amount due on their credit cards, an additional late payment fee is charged with around Rs 1,000.
Additionally, with nonpayment of a credit card bill on time or revolving the credit outstanding balance by paying only the minimum due amount, the card holder’s credit score will get affected.
Hence, keep in mind, excessive use of a credit card can throw an individual’s finances into disarray. In any case, using your credit cards for monthly essentials or bills will only give you a free period of about 45 days. You need to find an alternative way to take care of your expenses. Experts suggest one could also redeem their existing investments or take a loan from family or friends, in a worst-case scenario.