Credit Card Trap
The Credit Trap - 10 Symptoms
was a time when credit cards were status symbols, when only
the elite had access to them and it was unthinkable that a college
going kid could possess a credit card. And then came along liberalisation
and more importantly the Cyber Age, when suddenly salaries
zoomed up, incomes became highly disposable and credit cards ceased
to be status symbols. If status was the issue, then the criteria
was defined by Platinum and Titanium cards.
The present. Or can we say the Post Cyber Age? Economy is
in a slump, there is no job security, the job market is inert and
pink slips are in. Where does a credit card figure in this gloomy
There are over five million credit card holders in India.
Studies show that every year nearly 1.5 million people join the
bandwagon. A study carried out by the Credit Card & Management
Consultancy firm shows that the proportion of credit card holders
revolving credit has increased sharply from 25-30 percent in 2000
to 35-40 percent this year. Ideally this increase in number would
have meant more expenditure, more buying and therefore more selling
- a trend which is definitely a good news for any country's economy.
But unfortunately reality is something stark and different: this
increase in number of credit card holders has only been reinforcing
the dampened mood.
the economy liberalised, the number of choices given to the Indian
consumer suddenly increased. There was a sudden boom in the market.
There were a wide variety of cars to choose from and the best of
houses and apartments to live in. The shelves of shops were suddenly
flooded with a variety of gadgets, consumer goods and all those
symbols of a good life. With increased salaries, highly disposable
incomes and hi-fi jobs consumers too had a lot of money to spend.
The doors opened to a more consumer oriented society. The consumer
became the king and the market not only pampered his needs but disguised
desire as needs. The iron was hot and striking everywhere were the
finance firms with credit cards. Suddenly credit cards became
available to everybody. One could buy anything one wanted at anytime.
when money was the issue, came the rationality of owning two or
three credit cards. "Why not, they are very useful. You never
know when you suddenly need money and in such times credit cards
are useful," says Kiran, a marketing executive. This reasoning
coupled with a shop-oholic attitude lead to outstanding credit bills
running to the tune of Rs 50,000 or about 75 percent of one's monthly
the economy slowed down. Companies have started laying off
their staff by the dozens. Software engineers are coming back from
the beleaguered US market. People who had bought a new car or a
new house or some consumer good are suddenly becoming aware of huge
outstanding against their credit cards and high monthly installments,
without enough resources to pay them back. People have begun to
fall into the dreaded Credit Trap. Anxiety and panic has started
such a situation, how does one intelligently use credit cards? One
has to first understand the symptoms of the Credit Trap and then
take steps to avoid any situations that could lead to this trap.
The Credit Trap - 10 Symptoms
Two obvious ways to avoid the credit trap. First of all, spend
less and postpone the luxuries. Secondly settle for prudence over
shows of wealth. Follow these rules; you are bound to be safe in any
periods of recession.
- Half of what you earn in going into loan repayments and credit
- You've revolved credit on your card for three consecutive months.
- You've missed two consecutive EMI payments.
- Your savings are less than three months' salary.
- Your investments have eroded drastically.
- Your salary has been cut by over 20 percent.
- Your salary hasn't appreciated, but your aspirations have.
- You've changed two jobs in the past year.
- Your company's growth has been falling over the past two quarters.
- Loss of sleep or bouts of depression, courtesy financial worries.
Source: Business Today