Mind Your Limit !!!

Every month on 25th I tend to skip a couple of hear beats. Watching the calender seems so painful. Its not the day I got married, rather its the day of receiving credit card statement. Like other days, even today the mailbox is full of job openings, some crap discounts, money making tips from experts who know how to make milions but somehow agree to remain middle class themselves and a mail or two from UK Lottery saying I just won 1.5 Million Pound in lucky draw. Between them a subject lines appears boldly 'Your Credit Card Statement for Period XYZ'. I sometime wonder why don't they append it with "Open With Care" warning. After all mostly it gives the card holder a shock no matter momentarily though.

The first thing that comes to my mind is finding occasions I've used my cards on and try to run a mental reply of occasions I've used my cards for. This is another area of problem since many times the business is booked of different names that one you used for. This reply exercise is short, what last is the painful feeling of paying dues which sometimes end up with feeling guilt.

Its not the guilt of spending money, rather its the guilt of spending money on completely avoidable and unnecessary stuff. The stuff I felt earlier was cool and necessary suddenly becomes expensive and inessential. But why didn't it appeared so earlier?  I don't earn millions that I can spend it casually. Then where did all this money came from? The answer is Credit Card also known as plastic money. Credit card is an invention to power people to buy things they were or thought they can afford to. As the name suggest Credit card is nothing else than a loan or debt taken for bank which one has to pay back with interest. Its single most important reason for invention is to make people spend more. With every swipe banks get their share. They earn a lot more in case a customer defaults on payment. In return they lure people with cash back, point redemption and other marketing techniques. 

What one needs to understand is that credit limit you see in Credit card is not physical, its a virtual money created by banks, money that you have not yet earned. There is virtually no limit on the amount of credit a bank can give. Now a days the banks just distribute cards for free with high credit limits. They know ones a customer get a card he will start spending. I recollect another such  incident which used the same strategy to gain customer base. At the time when mobiles used to cost thousands and call rates were 4-5 Rs per min, Reliance Communication introduced a scheme where mobile phones were sold for Rs 250 and call rates dropped to Re 1. What happened next is no more secret. A device considered luxury was now a necessity. People now needed mobile phones more than ever and since call rates were cheap they used phones more than ever and finally end up spending more than required.

The is a saying in Hindi "Pair utne failao jitni badi chadar ho", meaning one should spend well within his means. With plastic money in hand people forget that this is not theirs; they have to reply it one day. banks on other hand keep distributing card without carrying out proper background check. People incapable of payment default on cards and the outcome of this collective and chronic default leads to financial crisis. Economic crisis we saw in 2008 was result of reckless distribution of money. 

Its obvious to consider that if credit cards are so disastrous why shouldn't they be banned. That's because credit card is a financial tool to facilitate flow of money. We can now go on shopping and vacations without carrying loads of cash, which also decrease the chances of theft. Moreover it gives people an extended hand while buying goods which was earlier out of their reach. For example one can buy TV set and pay back in installments. Not forgetting cash back and other benefits. On regulatory point of view credit cards provide a traceability of money and hence avoids tax evasion. What one needs to remember is that credit card is a powerful and helpful financial tool which can be easily misused. Be wise in making decisions while shopping and consider the need of goods before hitting BUY button. A purchase through cards is a after all a  a loan taken from bank, the earlier you repay the better, because any delay in payment will be dealt with hefty fine and interest.