Follow These 10 Commandments And Credit Cards Won’t Rule Your Life

My secretary discovered the other day that I was the former MD of CIBIL and sheepishly requested for advice – she was getting calls from recovery agents saying and threatening that if she did not pay her outstanding dues on her 5 credit cards, her name would be reported to CIBIL and she would never get a loan again or a credit card in her life.

In my mind I was thinking – wow, what did I help build! It’s an organisation, a concept that has replaced the proverbial hockey stick – the not-so-mythical recovery magic wand of the days gone by.

On a more serious note, with some gentle prodding and not-so-subtle questioning, I discovered the following amazing facts:

· She had 5 credit cards with limits ranging from Rs 15,000-30,000, overall aggregating to a limit of Rs 1,00,000-plus.
· She had applied and got approval for these cards in the days of ‘indiscriminate gathering of credit card accounts’ by lenders.
· She was using them rather irresponsibly to pay for things she intuitively wanted, not thinking how she would pay back.
· She was paying the ‘minimum amount due,’ feeling smug about the fact she was never late on that minimum payment.
· She has now realised the very high cost (up to 30%-plus) of not paying the rest of the outstanding on time.
· The dues had ballooned to a huge amount due to the interest rate payable on the outstanding dues.
· The aggregate outstanding was an amount she would not be able to service.

… And hence the calls from recovery agents.

Over the next few months, we worked on a specific plan and weaned her away from this huge debt trap, with a little bit of help fr0m friends and family, some counselling and a large dose of imposed discipline. The fact that counselling individuals precisely in this aspect is what we do as a credit counselling company did help.

She was relieved (the calls stopped); her credit history improved and she started ‘hating’ plastic with vengeance, having seen what it did to her financial situation and peace of mind. And her efficiency at work improved too.

For all of us, here are the lessons we should always remember:
· Do not apply for or acquire credit cards beyond what you need.
· Cancel or close credit cards you do not use.
· Do not swipe cards beyond your capacity and pay all dues on the date the payments are due.
· Remember you have to pay – swiping means delaying that – not wishing it away.
· This delayed payment comes at a huge financial cost – interest rates on outstanding credit card dues ranges from 30-38 % p.a.
· Paying minimum balance is no answer. In fact, it compounds the problem and lulls you into a false sense of complacency and belief that you are in control of your card bills. Don’t forget the huge interest on the unpaid amount.
· Therefore, always pay on or before due date.
· Do not put yourself in a position where the payment due hangs on you like a sword.
· Use the credit card as a convenience – not as a tool to leverage your current income to borrow multiples of that income.
· Before you swipe that card, ask yourself – do I need this and can I pay off this amount when my next salary comes into my bank account? If the answer to both questions is YES, go ahead and swipe.

Follow these 10 commandments and the evil plastic will not dominate your life!

To finish on a lighter note – a bank called its credit card customer to say “your credit card payment is outstanding” and the customer grinned from ear to ear and said, “Thank you for the compliment.” You don’t want to be in that position.

About the author: Satish Mehta is the Founder and Director of Credexpert, a credit and debt counselling company in India.