A respondent from Hosur reported:
A friend of mine used to purchase anything, only when he had enough money. He received a credit card from a bank. After receiving the card, he started buying everything, without planning for money. Using the card, he purchased a washing machine for Rs.21,000, but he could not repay the same within the stipulated time. He started paying the money in instalments. Finally, he had to pay Rs.45,000/- towards the principal and interest, after taking loan from another bank. Had he bought the washing machine under bank loan, he could have paid less.
Debt Trap is a situation where you add on a new debt in order to pay an existing debt
Caught by credit card debt – real story
On behalf of Pre-Sense, we spoke to a young person, who got trapped into credit card debts and got the first hand experience from him. (Identity of the person suppressed).
"I am a working professional with a salary of Rs.40,000 plus incentives per month. When I joined the company, I requested my banker to give me a credit card with a reasonable limit. I used the card properly and availed the credit period judiciously in the initial months. I used to clear the bill within the stipulated time.
I do not know, how other banks got my contact number. Many banks started calling me offering credit cards with huge limits. They told me that because of my prompt payment and loyalty, they were offering credit cards. Tempted by these offers, I secured 12 credit cards from different banks with varied huge limits. Afterwards, I started using my credit cards left and right to purchase tickets, jewellery, luxury items, etc. At one stage, my liability went upto 4 lakhs. I could not settle the bills within due date. I opted for minimum payment. After 6 months, due to various reasons, I could not pay even the minimum amount. Agencies started knocking at my door. Finally, I had to sell off my jewellery and some more valuable assets to clear the entire debt and huge interest.
After clearing the credit card debt, I surrendered all the cards, excepting one, that too with a reduced affordable limit. Now I have started using credit card very carefully. To learn this lesson, I paid a heavy price"
Compiled by K. Srinivasan, Editor in Chief, PreSense