Last Updated on
Do you make purchases using credit cards? Do you want to know why you shouldn’t be using credit cards? Some of you may think that using a card is intelligent. There’re basically three reasons that make you feel so:
• Reward points such as cash back
• Zero interest if you pay on time
• No need to carry cash
We hardly need to pay the card issuing bank anything other than the minimum annual fee. Then how do these banks earn a profit using us? Let’s explain with an example:
We use Facebook for free, right? Then how does Facebook make money? They use our personal data, likes and dislikes to show the target ads which match our needs. Now you get the point that there’s nothing free in the world.
Can you outwit the credit card companies?
When you use a card, the parties involved in the transaction are:
• The cardholder
• The merchant
• The merchant’s bank
Each time you (the cardholder) pay using your credit card, the merchant’s bank pays the card issuing bank an interchange fee. A portion of this interchange fee is regarded as profit for the bank that you got your card from. On the other hand, the merchant needs to pay an additional fee to the merchant’s bank for handling the transaction request. The small amounts add up to make a huge profit for the credit card issuing bank and the bank’s issue credit cards for the interchange fee in the first place.
Why shouldn’t you use credit cards?
Even though you know by now that the card issuing banks make money through each of your transactions, it may not be clear to understand why you shouldn’t use a credit card. To a card user, it may seem that you’re paying 1000 Rupees using the credit card for a shirt that retails for 1000 Rupees. You aren’t paying a penny extra to buy the shirt and you can also make the payment within the due date for your convenience. However, the card plays the role of a generous friend who makes you believe that you can afford the small expenses. When it’s time to pay the credit bill, all the small expenses add up to burn a hole in your pocket. To know about Sbi balance enquiry please stay with us.
How to handle the situation?
When you’re making payments using the card, you don’t really witness a fall in your bank account. This, in turn, makes you feel comfortable and makes you believe that the purchase is affordable. On the contrary, if you pay using cash or debit card, you can notice the reduction in your wallet or bank balance. Therefore, the best way to make purchases is using either cash or debit cards. If you still think that cards are convenient and make online transactions easy, you should choose a debit card for the same facilities. Moreover, you don’t want to trigger the pain of losing your hard earned money and let the bank enjoy the profit.