Always spend only what you earn

Resist the temptation to live life on credit. Borrowing money to spend will create huge debts for you.

With a plethora of credit cards and rewards for using them, one is tempted to use credit cards for all purchases. One normally starts small – an occasional dress, a meal at a fancy restaurant, a small electronic appliance. As long as you pay the bills every month, you are safe. But then you are short of money at some point – the salary will come two weeks later – and there is an attractive deal on air tickets to France. You use the credit card and then proceed to shop for the entire vacation in a matter of minutes.

The problem begins when you are unable to repay large credit card bills. There are cases of people buying expensive cars, swanky LED TVs, even booking costly overseas vacations using their cards. It's the easiest thing to do – reach out for your credit card when you are low on cash. Soon, you are embroiled in a debt cycle that has you firmly in its clutches.

Some people purchase more credit cards to pay for their other cards. It is a situation fraught with the most risk – if you are unable to repay your credit card bills, you will be penalised heavily. Trying to subvert the payment can also result in imprisonment in some cases.

There is an easy solution: get a debit card instead of a credit card. It is a card directly linked to your bank savings or current account, and it is literally plastic money. You can carry debit cards instead of an equivalent amount of cash. They are convenient and can be used for every sort of purchase, or even to withdraw money from your account at times of emergency. Banks also do not levy a charge on cash withdrawals using debit cards, for a maximum number of withdrawals.

The best part is, the debit card does not allow you to spend beyond your means. If you do not have the required funds in your account, you simply cannot spend till you deposit more funds in the account. This automatically curtails expenses – you only spend as much as is available. This way, debit cards are ideal tools to inculcate the habit of spending only what one earns.

Banks in India incentivise the use of debit cards by offering redeemable rewards on transactions. Some banks tie up with prominent brands and retailers to offer cash back and loyalty points for shopping. They also offer rewards for maintaining a healthy balance per month, using the card during the festive season, or using the card to pay utility bills before the due date.

Debit cards do not land their user in debt, since they curtail spending once the bank balance runs out. They are thus useful for those who wish to control their spends and be fiscally responsible.