The Hindu Business Line : Beware! Credit cards can be as addictive as drugs

IF you are a credit card holder and are planning a small outing over the weekend, www.personalfn.com is a good place to visit. In an article titled `Landing in a debt trap', the site offers some small and to some extent useful tips for credit card holders.

You can get as addicted to credit cards as you can to drugs and alcohol, says the article. If you start using your credit card for any and every thing, you could soon find yourself facing a severe cash crunch. Then, unable to pay your dues, you find yourself forced to approach friends and relatives for a loan.

The article does mention `balance transfers' in this connection; but fails to add that those who have tried this option soon find that these only postpone your problems, rather than resolving them.

Concessional rates of interest offered for balance transfers only last for 3 to 6 months. After that, it's back to the grind, at penal rates of interest. Furthermore, the very act of applying for a balance transfer signals to the company offering the transfer that it has got hold of a `big spender', who might soon end up spending more and more in settling his credit card dues than he does on everything else combined.

The very fact that you have found it necessary to seek a balance transfer makes it likely that you will prove yourself to be a lucrative and unending source of income for years on end. Problems could begin even before the expiry of the concessional rate of interest period. For example, after taking a balance transfer and breathing easy because you have at least managed to postpone the problem by a few months, you could well find in the very next statement that any money you repay first goes towards settling the transferred balance, rather than the charges you have incurred over the month.

In other words, unless and until you settle up the entire balance transferred, you would find yourself having to pay overdue interest on current charges even if you have the money to pay them off.

The article is, however, of more use in respect of some other points. For example it states that you could find yourself in serious trouble if you `reach for your card automatically when you don't have cash'.

This could land you in a position where you find yourself able to pay only the minimum amount.

The article fails to add that you might one fine day get the bright idea of drawing cash on one card to pay off the debts you have chalked up on another. Cash drawals are somewhat similar to balance transfers in the sense that any amount you pay is first set off against the cash drawal. The only difference is that with cash drawals your problems begin immediately rather than a few months later.

Calculate the sums you have paid over the years in credit dues, the article says; `interest and late payment fees could add up to a fortune'. With effective rates of interest of 30 to 45 per cent per year, this is in fact an understatement. Cut back on expenses, and prioritise your spending, it goes on to advise. Call your bank and ask them to reduce your credit limit. If you are unable to do this, because of an excess of dues or overdues, then you could keep asking your bank to lower your limit as and when you make any payments.

If you have to, the article adds, you could even consider cutting up some of your cards. Try to limit yourself to two cards is another bit of advice that the article offers. Reserve one for (tightly budgeted) monthly expenses, and keep the other in reserve for emergencies.

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