This addiction can wreck you financially as well as emotionally.
A few decades ago terms like credit card addiction, debt trap or shopaholics were unheard of. Now they are not just terms that we read but real and potential threats, more common than we would like to think. Buying now and paying later is a regular practice whether its everyday purchases, dream holidays or consumer durables. There is nothing wrong with it unless you get reckless with these cards and the person gets addicted to it.
The first step to solve any problem is to identify it. So how do you know that you are addicted to credit cards? Here are a few indicators.
1. Exhausting or touching the credit card limit frequently
Credit card can be life savers in financial emergencies; they can help you ride out a small financial storm without seeking help from others. So a maxed out credit card is necessarily not a warning sign if it happens once in a while; however a month on month pattern where your bill touches the maximum spending limit or your card is declined when you swipe it because you have already exhausted your limit (without even realising it) is a sure sign of worry.
If this happens frequently then may be it's time to sit down and figure out where the money is going, what is the spending pattern, are you buying on impulse? A high credit utilisation ratio impacts the CIBIL score also negatively.
2. Constantly applying for new cards
Getting cards is very easy these days. Often you get calls from the credit card companies telling you how convenient it is to get a new card, that there are no charges or that the credit card is being offered free to a select few, they talk about reward programmes, flying miles etc.
So in case one exhausts the card limit of one or more cards getting a new one to swipe and shop is not at all difficult.
What one may forget that while swiping that you still have to pay for all of them at the end of the month.
While you may choose to forget your debt, your debt will not forget you and all defaults reflect in your CIBIL report for a period of five years. So if one is on a constant lookout for new cards because the old one is exhausted it is surely a sign to worry about.
3. Depleting savings or no savings
If all what is earned is spent every month then it is not a good sign for the financial health. Irrespective of how much one earns, depending on various factors a percentage of the income should ideally be saved every month. If you find that despite budgeting you do not save anything, or there is nothing at the end of the month left to save it is a red signal.
In case you find yourselves dipping into your savings to pay your monthly card bills then it is a red signal with capital "R".
It's like a double jeopardy you are not only eating away all the earnings and not keeping anything for a rainy day but whatever little you have saved in the past is also getting eroded quickly. The urge to spend and use the credit card makes planning go awry.
4. Borrowing to pay
Going one step further from using one's own funds or savings to pay credit card bills is, having to borrow to pay them. In case you are forced to borrow from your friends or family to pay your credit card bills then surely you have a credit card addiction.
Again resorting to this measure due to some emergency is not a cause of worry; doing it again and again is. Often people may resort to taking personal loans or other desperate measures also to pay the bills without bothering to check their spending.
5. Secretive about bills
If you hide your bills from your family or spouse then also it's an indication of an addiction to the credit card. Not wanting to discuss your spending because heart of hearts you also know it's not a healthy pattern or your family not being aware of the enormous credit card bills that one runs every month is another sign of addiction.
6. Paying only the minimum amount due
Another indicator of the addiction is paying only the minimum amount due every month, because there are no funds available to pay the full amount. The bills and charges keep rising but the credit card company does not take any immediate action as the minimum amount is paid, so the debt keeps adding up.
This is potential trouble which can blow up at a later stage.
Credit Card addiction can cause a lot of financial damage and may tarnish your CIBIL report for a long time. So in case one feels that they exhibit any or more of the above signs or the thought of not having access to your credit card worries you then it's time for remedial action.
Photograph: Keoni Cabral/Creative Commons
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.