Finanshial Fixes Episode 1
Welcome to Finanshial Fixes, your guide to smarter financial decisions.
Why "NOW" Costs More Than You Think?
- 4 min read
“According to a recent RBI Report, Indians hold over 9 crore credit cards and spend nearly Rs 142 Crores every month.” To put that in perspective, that amount could easily fund an entire IPL team for a season.
How Does a Credit Card Shape Your Choices?
You might be surprised to find that for many in urban India, the monthly credit card bill often rivals rent when it comes to top expenses.
Do you reach for your shiny credit card every time you see an ‘End of Season Sale’? If yes, you’re not alone.
Credit cards have become a part of our daily lives, granting our wishes with just a swipe. Credit cards, while super convenient, come with their own set of hidden tricks, influencing our spending habits for better or worse. They offer the thrill of buying now and the deception of paying later.
Let’s delve into some of the invisible strings that influences your choices:
The Illusion of Infinite Money
Credit cards can make you go on a shopping spree with no immediate worries. Ever been at a mall, seen a fancy pair of shoes or a designer hand bag that’s slightly over budget but thought, “I’ll just charge it on my Card”? You’ve fallen for the illusion.
The Pain of Paying
The ‘pain of paying’ is the uneasy feeling you get when spending money. Credit cards dull the immediate ‘sting’ of parting with money, making it easier for you to focus on only the benefits of your purchase, not the real cost. This mental detachment from your money often leads to overspending.
Quick Fact: Using a credit card can make you spend at least 12-18% more compared to using a debit card.
The Mind Tricks at Play
1. The 'Now' Trap
The Now Trap, also known as Present Bias is the little voice inside your head that encourages you to ‘Buy Now, Think Later‘. It’s like giving yourself permission to indulge today, while forgetting that tomorrow, the bill comes due. Always remember, your future self pays the price when ‘later’ arrives.
Ever made a spontaneous purchase because your credit card offered ‘No Cost EMI‘ options? That’s this bias at play.
2. The 'Pay Later' Illusion
This tempting illusion often convinces you that future financial responsibilities are ‘future you’s problem.
Let’s say you’re scrolling through Instagram and come across a Reel featuring a sleek, high-tech kitchen gadget. It slices, it dices, and it seems like the solution to all your cooking woes. The best part? It’s available online and just a click away. Under the illusion of “Pay Later,” you impulsively buy it, thinking you’ll figure out the finances later, as you always do.
Fast forward to the end of the month, and that kitchen gadget is now a line item on your credit card bill, contributing to an amount that you find painful to pay off. You use the gadget maybe once or twice before it starts collecting dust. The initial excitement of the purchase has worn off, and all that remains is a pinch of regret.
New Rule: Tempted by a killer deal? Wait. If the urge lasts 48 hours, it might be worth a second look.
The Good, The Bad, and The Rewarding
Credit cards are not the enemy; they are your valuable financial asset. However, depending on how you use them, credit cards can either aid or impede you.
The Upsides
Convenience: Perfect for quick transactions and online shopping.
Credit Score Building: Timely payments improve your credit score, making you eligible for better financial products.
Emergency Funds: They can act as an emergency fund when you need immediate financial assistance.
Easy EMI Option: Allows you to break down big purchases into manageable monthly payments.
Interest-Free Period: Offers a grace period where no interest is charged on the amount due.
The Downsides
Overspending: The ease of swiping credit cards often lead to purchases you don’t actually need.
Debt Trap: Failing to pay off the monthly balance can lead to extremely high-interest debt.
Fees and Charges: Annual fees and late payment charges can add up.
Credit Score: Missing a payment not only incurs a fee but can also hits your credit score.
Rewards - Boon or Bane?
Rewards might seem like freebies, but they’re cleverly designed to incentivize extra spending, not saving.
For instance, you might be tempted to spend Rs 5,000 more to earn a reward point that equates to only Rs 50 in value.
Essentially, the cost of chasing rewards often outweighs the actual benefits, leading you to spend more than you initially intended. While they offer short-term gains, the long-term impact could be an inflated lifestyle that you can’t sustain.
Be smart with your rewards game. Remember, every point earned is a hit on your wallet.
Word to the Wise: You should really sit up and take notice when Diwali, Eid or Christmas sales are around the corner. Trust us; your future self will thank you.
Be Credit Smart - How to Beat the Bias
Understanding the psychological factors that influence your credit card usage is a good step toward smarter financial management. Remember, the charm of ‘Buy Now, Pay Later’ often comes at a hidden cost.
To stay on top of your finances, be mindful of these traps and try to practice these healthy habits:
✅ Set a clear credit card spending budget.
✅ Checking your credit card balances regularly. This is something that gives you a reality check before the final bill arrives.
✅ Switch to Debit Cards or UPI for all small and frequent purchases
✅ Have a ‘Needs‘ card and a ‘Wants‘ card. Spoiler: The ‘Needs’ Card gets more action!
✅ Use EMIs only for big and necessary purchases
✅ Turn off ‘One-Click Buy’ settings in your favorite online shopping app
✅ 48-Hour Rule – Wait 48 hours before making any large credit card purchases
The goal here isn’t to advocate for cutting up your credit cards. Rather, it’s about empowering you to use them more wisely.
Why This Matters to You? – Because bad debt is more than a number. It’s stress and sleepless nights. Especially in India, with our high credit card interest rates, you need to be cautious.
“Up for a 30-day Credit Card detox challenge??” Thirty Days to a Smarter You!
Don’t Miss the Next Episode of Finanshial Fixes: ‘Why Yes Isn’t Always Best?‘
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Curious Questions
I'm stuck in a credit card debt trap. What should I do?
If you find yourself struggling with rising credit card debt, it’s crucial to act promptly. Start by seeking expert financial advice to evaluate your options.
Debt consolidation or transferring your balance to a card with lower interest rate or a personal loan might be a viable solution. If the situation is dire, consider asking for financial help from trusted family or friends to pay down some of your debt.
How many credit cards should I have?
The number of credit cards that’s right for you depends on how well you can manage them. Be cautious about annual and joining fees and always read the fine print for any hidden charges.
Keep in mind though that having multiple cards can impact your credit score negatively if not managed well. If you have cards you don’t use often, it might be wise to close those accounts.