Think before you swipe: 5 hidden dangers of using your credit card

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Credit cards are convenient credit-building tools, reward-collecting machines, and emergency money sources — but they can be a money pit if you're not careful. Many consumers become victims of common pitfalls that result in mounting debt, hurt credit records, and long-term financial anxiety. Before you swipe, tap, or click, it's beneficial to know the pitfalls you're getting yourself into.

Here are five large financial risks of paying with credit cards — and how to avoid them:

1. Unmanageable interest rates can spin your debt out of control

Credit card interest rates are inordinately high, usually ranging from 18% to 36% a year. When you don't pay the entire balance every month, interest charges add up fast, exponentially raising even modest purchases over time.

Having a revolving balance can put you into debt trap where minimum payments hardly make a dent in what you owe. This is particularly dangerous during times of economic downturn or inflation, when rates are most likely to go up higher.

What to do: Pay your whole balance every month. Otherwise, pay off cards with the highest rate first to save yourself in the long run.

2. Overdue payments ruin your credit score

A single missed or late payment can lower your credit score significantly, affecting your ability to secure loans, rent a home, or get hired. Payment history makes up the largest portion of your credit score, and delinquencies are there for seven years.

What to do: Make automatic payments or calendar reminders so that you never miss a deadline. Even paying the minimum on time is better than not paying at all.

3. Credit utilization can work against you

Paying with a credit card or charging a high percentage of your limit can damage your credit score, even with consistent payments. The greater utilization — typically over 30% of the limit — alerts lenders to potential risk and may decrease your ability to borrow in the future.

What to do: Keep your utilization ratio low. If your credit card limit is ₹1,00,000, make an effort to stay below ₹30,000 in outstanding amounts at any given time.

4. Rewards can lead to overspending

Rewards points and cashback are attractive, but they can also get you to spend more than you would normally. It is found by research that individuals spend more when they utilize a credit card rather than cash — particularly when looking for rewards such as flight miles or discounts on prices.

What to do: Make your credit card function like a debit card. Only spend what you can afford to pay in full, and see rewards as a bonus value — not a reason to spend more.

5. Sneaky fees can surprise you

Most credit cards include unexpected fees on top of what you would expect, such as an annual fee, late fee, foreign transaction fee, and over-the-limit fee. These will eat up any advantage you receive from using the card.

Do this: Don't sign up without looking at the fine print. Select cards with clear terms and few fees, and monitor your use closely so that you don't run up unsuspecting charges.

Credit cards are not evil per se — indeed, when used well, they are marvellous credit builders and temporary costs managers. But, like any financial tool, there is a catch. Knowledge and self-discipline can keep you out of credit card traps and on the path to healthy money.