My secretary discovered the other day that I was the former MD of CIBIL and sheepishly requested for advice – she was getting calls from recovery agents saying and threatening that if she did not pay her outstanding dues on her 5 credit cards, her name would be reported to CIBIL and she would never again get a loan or a credit card in her life!
In my mind I am thinking – wow, what did I help build! An organization – a concept that has replaced the proverbial hockey stick – the not so mythical recovery magic wand of days gone by.
On a more serious note with some gentle prodding and not so subtle questioning, I discovered the following amazing facts:
- She had 5 credit cards with limits ranging from Rs 15,000 to Rs 30,000 in all aggregating to a limit of Rs 1,00,000 plus
- She had applied and got approved for these cards in the days of “indiscriminate gathering of credit card accounts” by lenders.
- She was using them rather irresponsibly to pay for things she intuitively wanted, not thinking how she would pay back.
- She was paying the “minimum amount due”, feeling smug about the fact she was never late on that minimum payment.
- She had now realized the very high cost (upto 30% plus) of not paying the rest of the outstanding on time.
- The dues had ballooned to a huge amount, due to the interest rate payable on the outstanding dues.
- The aggregate outstanding was an amount she would not be able to service.
…. And hence the calls from the recovery agents!!!
Over the next few months we worked on a specific plan and weaned her away from this huge debt trap, with a little bit of help form friends and family, some counseling and a large dose of imposed discipline. The fact that counseling individuals in precisely this aspect is what we do, as a credit counseling company did help!!
She was relieved (the calls stopped), her credit history improved and she started “hating” plastic with vengeance, having seen what it did to her financial situation and peace of mind!! And her efficiency at work improved too!!!
For all of us, the lessons to always remember from this experience:
- Do not apply for or acquire credit cards beyond what you need.
- Cancel or close credit cards you do not use
- Do not swipe cards beyond your capacity to pay all dues on the date the payments are due
- Remember you have to pay – swiping means delaying that – not wishing it away!
- This delayed payment comes at a huge financial cost – interest rates on outstanding credit card dues ranges between 30-38 % p.a.
- Paying minimum balance is no answer – in fact it compounds the problem – lulls you into a false sense of complacency and belief that you are in control of your card bills. Don’t forget the huge interest on the unpaid amount.
- Therefore always pay on or before due date.
- Do not put yourself in a position where the payment due hangs on you like a sword.
- Use the credit card as a convenience – not as a tool to leverage your current income to borrow multiples of that income.
- Before you swipe that card ask yourself – do I need to and can I pay this amount off when my next salary comes into my bank account? If the answer to both questions is YES, then go ahead and swipe away!!
Follow these 10 commandments and the evil plastic will not dominate your life!
To finish on a lighter note – a bank called its credit card customer to say “your credit card payment is outstanding” and the customer grinned from ear to ear and said “thank you for the compliment ”. You don’t want to be in that position!!