Are you having trouble getting your credit card balances under control? If so, don't beat yourself up over it - you're in the same boat as thousands of other consumers. Once you choose to change you spending habits, however, it is possible to make your debt manageable. Use these simple tips to stop adding to your existing credit card debt and start regaining control of your finances.
Not only will you never pay off your bill, but the interest rates that credit card companies charge will actually keep your bill growing every month. Instead, send as large of a payment as you can afford to. Where possible, reduce your spending in other areas to focus on paying off your credit card debt. It might be worth going without extras like cable television or new clothes for a while if it means you can sleep easier at night knowing that you'll soon be free of debt.
It may not feel like you're saving money when you increase your credit card payments, but you are. Depending on your intrest rate, you're saving an average of 10-29% per year in interest on any balance that you manage to get off your cards. That means that if you pay off an extra $1,000 this year, you're actually coming out $160 to $290 ahead, depending on your interest rate. If you're already in debt, chances are money is tight for you, so freeing up this extra money can really start to give you some breathing room in the long run. Whether you use this money to accelerate your debt payments further, start an emergency fund, or invest in your retirement, the power of compound inrest will start working for you instead of against you.
Don't Use Your Credit Card for Everyday Items Except in extenuating circumstances, you should have your budget under control enough that you can at least pay for your monthly necessities with your monthly income. By keeping required purchases like groceries and utility bills off of your credit card, you'll be taking a major step in the right direction to getting your spending under control. Consider that a $3 gallon of milk purchased with a credit card can quickly turn into a $30 gallon of milk if you don't pay off the balance at the end of the month. There's no need to incur interest charges on necessary items that you should be paying for with your monthly income
Be Wary of Credit Card "Rewards"The rewards you can earn from credit cards, while a nice perk, are worth far less than the extra interest you'll accrue if you can't pay off the money you spend to earn such bonuses. The credit card reward schemes that allow you earn points on your credit card purchases often come out to a reward of 2% or less. For example, you may receive one point for each dollar that you spend, but you must redeem 5,000 points to get a $100 discount on a plane ticket. Because the amount of interest that is charged on outstanding account balances exceeds the 2% bonus that you received, it may not be worthwhile to incur the interest charges for such a small reward.
You should also avoid signing up for multiple credit cards, regardless of the sign-up bonuses they may offer. If you already know that you don't manage credit cards well, don't give yourself more temptation in the form of more cards. It's also easier to miss a payment deadline when you have more cards than you can comfortably keep track of, and a few $39 late fees or interest payments will quickly obliterate any $100 gift card you may have received when you applied.
Once you have your credit card debt paid off, if you understand how your cards work and you trust yourself to not go into debt again, you can start using credit cards as convenience cards. As long as you pay your balance in full and on time each month, there is nothing wrong with using credit cards to avoid carrying around cash or to take advantage of rewards like frequent flier miles - as long as your purchases fit within your monthly budget, of course. Say "No" to Cash AdvancesCredit card companies employ tactics such as sending you checks in the mail as often as once a week and encouraging you to use them to pay bills or treat yourself to something nice, but only in the fine print do they mention that these checks are considered a cash advance.
The main reason why taking a cash advance is such a bad idea is that you start accruing interest the minute you take the advance - unlike with regular credit card purchases, there is often no grace period. You're also charged an automatic fee, usually around 2-4%, on the amount of the cash advance in addition to a higher interest rate than what you're paying on the rest of your credit card balance. To add insult to injury, the credit card company often won't consider the cash advance to be paid off until you've paid off your balance for your other purchases.
The best thing to do with these checks is to shred them as soon as you receive them. This way, you'll avoid the temptation to use them and prevent would-be identity thieves from snagging them out of your trash. Many credit cards will also send you a pin number shortly after you sign up for a card so that you can use your credit card to get cash from an ATM. Shred that pin number, too - cash advances are a terrible deal for consumers.
Avoid Using Your Credit Card as a Cure for Medical BillsMedical bills can be overwhelmingly expensive, especially if you're uninsured. If you're having trouble paying your medical bills, negotiate an agreement with the hospital or other company to whom you owe money. Don't add to your bills and your stress by tacking exorbitant credit card interest rates onto them. You should also consider going over your bills with a fine-toothed comb to make sure they are accurate and that you understand all of the charges.
Don't Ignore Your DebtSome people become so stressed out or embarrassed by their credit card debt that they simply stop opening their bills and pretend that the problem isn't there. While this tactic may appear to work for a month or two, it's a bad approach because while you're ignoring your bills, interest rates are causing the balance you owe to grow every day. In fact, if you miss a payment or two, the interest rate itself may even increase under the terms of your credit card agreement. Not paying your bills on time also has a detrimental effect on your credit score.
If you're feeling overwhelmed, you can call each of your credit cards and ask to renegotiate the terms of your agreement. Sometimes you can get your interest rate lowered, set up a payment plan that will allow you to pay off your debt, or even get some of your debt forgiven, all with a simple phone call. If your first call doesn't work, remember that just because one person says no doesn't mean that's the final answer. Keep calling the company back - you'll often get a different customer service rep almost every time, and talking to different people may allow you to negotiate a better deal.
Ignoring your debt can also spur debt collectors into action, and with the unsavory tactics some collectors are employing these days, you definitely don't want to do anything that might put you on their radar. Finally, don't let embarrassment prevent you from taking action; you might assume that most everyone you know has their finances under control, but some of them probably have at least as much debt as you do.
ConclusionCleaning up your credit card debt takes time and self control, but the steps outlined here aren't difficult. There's no reason that credit cards can't be a helpful, convenient tool - assuming you can learn to use them sensibly and responsibly. These tips will help you keep control of your cards instead of letting them control you.
Monday, November 3, 2008
Thursday, August 28, 2008
Is your credit card making you broke?
A CREDIT card nestles a lot of hidden costs – so if you aren’t careful, your monthly statement can come as a huge shock.
Here is a checklist of reasons why you may incur unnecessary credit card expenses:
You don't pay the minimum amount due
Whether you do it knowingly or unknowingly, you will end up paying a late payment fee. This fee varies from bank to bank. If you do not pay for two consecutive months, you become a defaulter. Collection strategy then varies, depending on his risk score arrived ad from the amount outstanding, past record, individual profile/ profession. Further transactions will be blocked.
You revolve your balance
Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.
Your payment cheque bounces
You would have to bear a fee for dishonoured cheques. If you go beyond the due date, you become a delinquent case, and your risk profile shoots up. Also, all charges will be applicable – a fee for a bounced cheque, a late payment fee and monthly interest on outstanding amount.
You cross your credit limit
Your credit limit is the maximum amount that you can spend using your credit card, as dictated by your income profile. But should you decide that you need to spend more, the banks are too clever to block further transactions. Instead they let you spend, and then charge you – perhaps as much as 5% on the exceeded amount.
You transfer your balance from other cards
Some banks make an offer where you pay absolutely no interest or a very low interest, but the dream run doesn’t last long. Most banks let you not pay or pay low interest on the transferred amount for a stipulated period of about three months. Beyond that, you start paying the normal interest. So, if you have transferred your balance, pay off the dues within the stipulated time.
Other precautions you can take:
Do not withdraw cash with your credit card
Apart from paying the regular interest of 2.95%, you will also have to pay a one-time fee of about 2-2.5% for making a cash advance. Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn’t belong to the bank whose credit card you hold. Also remember, when you withdraw cash, you start paying interest from there on, as against getting a free credit period.
You forget to pay your annual chargesIn case you decide not to use your credit card further and you don’t pay the annual charges, you are in for trouble. Remember, you need to get in touch with the bank and intimate them that you don’t want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date.
Here is a checklist of reasons why you may incur unnecessary credit card expenses:
You don't pay the minimum amount due
Whether you do it knowingly or unknowingly, you will end up paying a late payment fee. This fee varies from bank to bank. If you do not pay for two consecutive months, you become a defaulter. Collection strategy then varies, depending on his risk score arrived ad from the amount outstanding, past record, individual profile/ profession. Further transactions will be blocked.
You revolve your balance
Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.
Your payment cheque bounces
You would have to bear a fee for dishonoured cheques. If you go beyond the due date, you become a delinquent case, and your risk profile shoots up. Also, all charges will be applicable – a fee for a bounced cheque, a late payment fee and monthly interest on outstanding amount.
You cross your credit limit
Your credit limit is the maximum amount that you can spend using your credit card, as dictated by your income profile. But should you decide that you need to spend more, the banks are too clever to block further transactions. Instead they let you spend, and then charge you – perhaps as much as 5% on the exceeded amount.
You transfer your balance from other cards
Some banks make an offer where you pay absolutely no interest or a very low interest, but the dream run doesn’t last long. Most banks let you not pay or pay low interest on the transferred amount for a stipulated period of about three months. Beyond that, you start paying the normal interest. So, if you have transferred your balance, pay off the dues within the stipulated time.
Other precautions you can take:
Do not withdraw cash with your credit card
Apart from paying the regular interest of 2.95%, you will also have to pay a one-time fee of about 2-2.5% for making a cash advance. Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn’t belong to the bank whose credit card you hold. Also remember, when you withdraw cash, you start paying interest from there on, as against getting a free credit period.
You forget to pay your annual chargesIn case you decide not to use your credit card further and you don’t pay the annual charges, you are in for trouble. Remember, you need to get in touch with the bank and intimate them that you don’t want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date.
Credit cards are like nagging wives
CREDIT cards are a lot like nagging wives -- you can't live with them, you can't live without them. From temporary borrowing, transfer of existing debt, facilitating regular purchase, social status and bill payments etc, credit cards seem to be a one-stop solution. The wife of course is a one-stop solution for everything in life.
But the downside is pretty steep too. High interest, threatening agents, bad credit history etc can follow a credit card And since you plan to enter a long term relationship with both -- it's best you choose carefully. But these days it may be a better idea to spend more time choosing your credit card than your wife because while your wife will forgive you if you forget her birthday, you credit card will not be as forgiving if you forget due day.
So let's see what you need to keep in mind while choosing your credit card:
1. Joining and annual fee
Many credit cards are being offered free for life except a few high-end credit cards. Hence you should ideally go for a card, which has no annual or joining fees. Make sure it's a lifetime offer and not just for the first year.
2. Balance transfer facility
Many consumers look at credit cards as a short-term debt facility. When a consumer is not able to manage the debt with one credit card, he wishes to transfer the debt on the other card. Balance transfer feature could be very useful in such a case.
3. Interest ratesBeware of this one.
When credit card dues are not paid within the given period, banks charge interest on the amount due. If you are taking a credit card to avail a short-term loan, interest rate has to be taken very seriously. Generally these rates vary from 1.33% to 3.15% per month depending on the card type and other features.
4. Credit period
Usually, all banks that provide credit cards extend a free credit period of 21-52 days. This depends upon the type of card and the date of transaction. More the interest free credit period, the more time you have to pay off the due without having to pay the interest.
5. Credit limit
This the is the maximum amount you can spend at a time, using your credit card. This depends on your income, which the bank refers to when issuing you the card. The general outlook is -- higher the credit-limit the better! This is not advisable unless you intend to use the credit card limit.Use our debt evaluation tool to find out if you have borrowed more than your own limit.
6. Customer service
Few years back, customer service was not a greatly developed concept in banking as well as credit cards. Now customer service is a factor to be taken very seriously when going for a credit card. It’s better to go for a credit card offered by a bank with which you already have an existing good relationship.
7. Reward points and cash-back
All banks are trying to attract customer through schemes like reward points. Especially people who intend to use the credit card fairly regularly should look for good reward point schemes.
8. Shopping perks
A good credit card is acceptable with most merchants in the town and across the country. Having tie-ups with multiple outlets, which offer great discounts, and shopping schemes are an added advantage. This also includes the waiver of surcharge at petrol pumps and utility bill payments.
That's a long list isn't it? The smart way to select a credit card is outlining the needs first. Don't go for features that you will never use. Thankfully the path to selecting the right wife is a whole lot simpler, especially in our country -- Just ask your parents to do it for you!
But the downside is pretty steep too. High interest, threatening agents, bad credit history etc can follow a credit card And since you plan to enter a long term relationship with both -- it's best you choose carefully. But these days it may be a better idea to spend more time choosing your credit card than your wife because while your wife will forgive you if you forget her birthday, you credit card will not be as forgiving if you forget due day.
So let's see what you need to keep in mind while choosing your credit card:
1. Joining and annual fee
Many credit cards are being offered free for life except a few high-end credit cards. Hence you should ideally go for a card, which has no annual or joining fees. Make sure it's a lifetime offer and not just for the first year.
2. Balance transfer facility
Many consumers look at credit cards as a short-term debt facility. When a consumer is not able to manage the debt with one credit card, he wishes to transfer the debt on the other card. Balance transfer feature could be very useful in such a case.
3. Interest ratesBeware of this one.
When credit card dues are not paid within the given period, banks charge interest on the amount due. If you are taking a credit card to avail a short-term loan, interest rate has to be taken very seriously. Generally these rates vary from 1.33% to 3.15% per month depending on the card type and other features.
4. Credit period
Usually, all banks that provide credit cards extend a free credit period of 21-52 days. This depends upon the type of card and the date of transaction. More the interest free credit period, the more time you have to pay off the due without having to pay the interest.
5. Credit limit
This the is the maximum amount you can spend at a time, using your credit card. This depends on your income, which the bank refers to when issuing you the card. The general outlook is -- higher the credit-limit the better! This is not advisable unless you intend to use the credit card limit.Use our debt evaluation tool to find out if you have borrowed more than your own limit.
6. Customer service
Few years back, customer service was not a greatly developed concept in banking as well as credit cards. Now customer service is a factor to be taken very seriously when going for a credit card. It’s better to go for a credit card offered by a bank with which you already have an existing good relationship.
7. Reward points and cash-back
All banks are trying to attract customer through schemes like reward points. Especially people who intend to use the credit card fairly regularly should look for good reward point schemes.
8. Shopping perks
A good credit card is acceptable with most merchants in the town and across the country. Having tie-ups with multiple outlets, which offer great discounts, and shopping schemes are an added advantage. This also includes the waiver of surcharge at petrol pumps and utility bill payments.
That's a long list isn't it? The smart way to select a credit card is outlining the needs first. Don't go for features that you will never use. Thankfully the path to selecting the right wife is a whole lot simpler, especially in our country -- Just ask your parents to do it for you!
How your credit card works
Harsh, CEO of apnaloan.com, is the co-author of 'Complete Home Loan Guides'. Through his columns he will take you through all the nuances of loans and credit cards.
The Basics
When you apply for a credit card, the bank you apply to carefully screens your application. You cant blame them given that there is always a crook around the corner.
A credit limit is worked out for you, based on your financial capability and other parameters like income levels, educational qualifications, age etc. The bank that issues you the card is called the 'issuing bank'.
The Business
From the bank's point of view, credit cards are good business for two reasons.
Banks make money through fees from merchant establishment.
The higher than normal interest rate paid by cardholders for the balance in their card.
So what are these merchant establishments? These form the heart of the business. Merchant establishments can be hotels, shops, travel agencies or any place where money transactions are made. The banks that enroll merchant establishments are called 'acquiring banks'.
The relationship between the bank and the merchant establishments is run via international networks such as Visa and Master card.
Your credit card is valid in any merchant establishment that accepts your network (ie Master Card or Visa), irrespective of the issuing bank. Most Indian card issuing banks are part of either Master Card network or Visa network, or both. There are others credit card networks like American Express and Diners Club too.
The merchant establishment finds the credit card a safer and efficient payment mode, and brings more business. The merchant establishment pays a fee to the bank that enrolled it for the service.
The Transaction
When you use a card at an establishment to purchase a product or service, your card is swiped on a swipe-machine. The swipe machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks.
The system verifies with your issuing bank whether you have sufficient credit to cover the purchase in a few seconds, and approves or rejects the transaction. As soon as approval comes through, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card.
The charge slip is then forwarded to the acquiring bank, which in turn settles the transaction with the merchant. The issuing bank also proceeds to bill you for payment as per the cardholder agreement. The acquiring bank will settle the transaction with your issuing bank through the network.
Sounds pretty straightforward? Then you're wondering why credit cards are such accursed instruments? That happens when you delay payments and get caught in an interest cycle. When you use a credit card you have the option to pay only a part of the total amount spent and carry forward the balance. But in such a case you will have to pay interest on all your purchases without any free credit period.
You can save yourself only if you are prompt in paying the balance by the due date. Credit card users get a free period of credit before they reimburse the credit card issuing bank. This may vary from 15 days to 40 days depending on the issuing banks.
The Basics
When you apply for a credit card, the bank you apply to carefully screens your application. You cant blame them given that there is always a crook around the corner.
A credit limit is worked out for you, based on your financial capability and other parameters like income levels, educational qualifications, age etc. The bank that issues you the card is called the 'issuing bank'.
The Business
From the bank's point of view, credit cards are good business for two reasons.
Banks make money through fees from merchant establishment.
The higher than normal interest rate paid by cardholders for the balance in their card.
So what are these merchant establishments? These form the heart of the business. Merchant establishments can be hotels, shops, travel agencies or any place where money transactions are made. The banks that enroll merchant establishments are called 'acquiring banks'.
The relationship between the bank and the merchant establishments is run via international networks such as Visa and Master card.
Your credit card is valid in any merchant establishment that accepts your network (ie Master Card or Visa), irrespective of the issuing bank. Most Indian card issuing banks are part of either Master Card network or Visa network, or both. There are others credit card networks like American Express and Diners Club too.
The merchant establishment finds the credit card a safer and efficient payment mode, and brings more business. The merchant establishment pays a fee to the bank that enrolled it for the service.
The Transaction
When you use a card at an establishment to purchase a product or service, your card is swiped on a swipe-machine. The swipe machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks.
The system verifies with your issuing bank whether you have sufficient credit to cover the purchase in a few seconds, and approves or rejects the transaction. As soon as approval comes through, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card.
The charge slip is then forwarded to the acquiring bank, which in turn settles the transaction with the merchant. The issuing bank also proceeds to bill you for payment as per the cardholder agreement. The acquiring bank will settle the transaction with your issuing bank through the network.
Sounds pretty straightforward? Then you're wondering why credit cards are such accursed instruments? That happens when you delay payments and get caught in an interest cycle. When you use a credit card you have the option to pay only a part of the total amount spent and carry forward the balance. But in such a case you will have to pay interest on all your purchases without any free credit period.
You can save yourself only if you are prompt in paying the balance by the due date. Credit card users get a free period of credit before they reimburse the credit card issuing bank. This may vary from 15 days to 40 days depending on the issuing banks.
Why 'cash-back' never returns!
Ketul H Shah is a Chartered Accountant and an MBA. He has specialised in Banking, Finance and Insurance. Ketul is passionate about consumer rights and is actively offering professional advice to consumer-related matters. His mantra: "To help customers find a solution to their problems."
REMEMBER that sinking feeling when you walk out of a mall only to realise that you have blown up a bomb? Blame it on the marketing guys! They make it all sound so enticing.These guys spend hours holed up in their cubicles thinking of new and innovative ways to make you part with your moolah. But we believe that forewarned is forearmed. Watch out for these 'schemes'!Dangerous liaisonsThe bank offers cash-back on the purchase or usage of credit cards at some specific companies/retail outlets with which they have a tie-up. Your monthly statement will reflect the cash-back on the amount you have spent. You can benefit if you use the correct card and buy specified goods or services in line with terms and conditions. The discount is actually borne by the tie up partner and the bank as per an agreement.Minimum is maximumThis offer is available on any goods purchased i.e. there is no tie-up with any retail outlet. The customers will benefit if they fulfill certain specified conditions such as the minimum amount you that should spend to qualify for a cash back.
Point scamSome banks offer reward points on usage of their credit card. The reward points or cash (depending on what you choose) can be redeemed against various credit card charges. This is an indirect way of extending the cash-back offer to the customer.Remember one thing, no matter how its presented, cash-backs will always be subject to certain terms and conditions.
For eg:1. Minimum purchase of Rs 2,000 per card swipe: Banks earn a commission between 0.5 and 2.5 per cent, per swipe from merchants for every swipe you make.
2. Purchase through particular card swipe machines: The banks ensure that the credit card gets swiped on their machine. The cost saved is shared as cash-back reward with the customers.
3. Exclusion of particular items: For example, items with a very low margin are not considered valid for cash-back.
4. Variable cash-back based on lucky number: If the last four digits of your credit card is 1234 then the bank would offer, say, 50% cash-back on your purchase. This has an element of luck and people love to give it a try.
5. No exchange: Cannot be used in conjunction with any ongoing offer at a retail outlet.
6. For a limited period, only: Banks believe that if a customer is given more time, he can plan his shopping to a overspending.A shopping thumb rule: be wary of any offer that makes you spend more!
Disclaimer: While I have made efforts to ensure the accuracy of my content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
REMEMBER that sinking feeling when you walk out of a mall only to realise that you have blown up a bomb? Blame it on the marketing guys! They make it all sound so enticing.These guys spend hours holed up in their cubicles thinking of new and innovative ways to make you part with your moolah. But we believe that forewarned is forearmed. Watch out for these 'schemes'!Dangerous liaisonsThe bank offers cash-back on the purchase or usage of credit cards at some specific companies/retail outlets with which they have a tie-up. Your monthly statement will reflect the cash-back on the amount you have spent. You can benefit if you use the correct card and buy specified goods or services in line with terms and conditions. The discount is actually borne by the tie up partner and the bank as per an agreement.Minimum is maximumThis offer is available on any goods purchased i.e. there is no tie-up with any retail outlet. The customers will benefit if they fulfill certain specified conditions such as the minimum amount you that should spend to qualify for a cash back.
Point scamSome banks offer reward points on usage of their credit card. The reward points or cash (depending on what you choose) can be redeemed against various credit card charges. This is an indirect way of extending the cash-back offer to the customer.Remember one thing, no matter how its presented, cash-backs will always be subject to certain terms and conditions.
For eg:1. Minimum purchase of Rs 2,000 per card swipe: Banks earn a commission between 0.5 and 2.5 per cent, per swipe from merchants for every swipe you make.
2. Purchase through particular card swipe machines: The banks ensure that the credit card gets swiped on their machine. The cost saved is shared as cash-back reward with the customers.
3. Exclusion of particular items: For example, items with a very low margin are not considered valid for cash-back.
4. Variable cash-back based on lucky number: If the last four digits of your credit card is 1234 then the bank would offer, say, 50% cash-back on your purchase. This has an element of luck and people love to give it a try.
5. No exchange: Cannot be used in conjunction with any ongoing offer at a retail outlet.
6. For a limited period, only: Banks believe that if a customer is given more time, he can plan his shopping to a overspending.A shopping thumb rule: be wary of any offer that makes you spend more!
Disclaimer: While I have made efforts to ensure the accuracy of my content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Monday, August 25, 2008
Credit card charges hiked by up to 50%
When it comes to exorbitant interest rates, even the loan sharks, the neighbourhood moneylenders can learn a few tricks from the banks which have raised the charges to as high as nearly 50 per cent per annum for their credit card customers in the past few days.
Over the past few days, nearly all the banks starting from PSU giant SBI to private sector leaders like ICICI Bank and HDFC Bank and foreign players such as Deutsche Bank and HSBC have either raised or are in the process of raising the "finance charges."
Interest rates on credit cards set to go up
These rates, between 35 and 50 per cent at present, are charged on credit card users for payments made after credit free period, which ranges from 15 days to two months. These are over three times the current benchmark prime lending rates of less than 15 per cent at most of the banks.
The high rates are being charged despite a National Consumer Disputes Redressal Commission (NCDRC) ruling last month that "charging of interest at rates in excess of 30 per cent per annum from the credit card holders by banks for the formers' failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practise."
‘Rising credit card defaults worrisome’
To top it all, these high charges, which varied between 30-40 per cent till some days back, get a mention only in the asterix-marked fine prints of credit card statements and there is virtually no limit to what level these could be raised.
On their part, banks claim it has become necessary to raise these charges, which a customer has to pay after the expiry of his or her credit-free period, in the wake of tightened liquidity in the system.
More India business stories Get the latest Sensex update
However, while the hike in interest rate for secured lending products like auto and home loans have been mostly about 0.5- 1.0 per cent, the unsecured credit card finance charges are being increased by about 10 per cent.
Over the past few days, nearly all the banks starting from PSU giant SBI to private sector leaders like ICICI Bank and HDFC Bank and foreign players such as Deutsche Bank and HSBC have either raised or are in the process of raising the "finance charges."
Interest rates on credit cards set to go up
These rates, between 35 and 50 per cent at present, are charged on credit card users for payments made after credit free period, which ranges from 15 days to two months. These are over three times the current benchmark prime lending rates of less than 15 per cent at most of the banks.
The high rates are being charged despite a National Consumer Disputes Redressal Commission (NCDRC) ruling last month that "charging of interest at rates in excess of 30 per cent per annum from the credit card holders by banks for the formers' failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practise."
‘Rising credit card defaults worrisome’
To top it all, these high charges, which varied between 30-40 per cent till some days back, get a mention only in the asterix-marked fine prints of credit card statements and there is virtually no limit to what level these could be raised.
On their part, banks claim it has become necessary to raise these charges, which a customer has to pay after the expiry of his or her credit-free period, in the wake of tightened liquidity in the system.
More India business stories Get the latest Sensex update
However, while the hike in interest rate for secured lending products like auto and home loans have been mostly about 0.5- 1.0 per cent, the unsecured credit card finance charges are being increased by about 10 per cent.
Monday, May 5, 2008
'Why should we pay two per cent charge on our credit cards?'
"Sometimes these credit card companies charge us money without even bothering to send statements. We don't even know what we are charged for," fumes 25-year-old Pradeep Kumar Singh, a relationship manager with brokerage house IndiaInfoline.
Pradeep owns as many as 7 credit cards from different banks but uses only four. "I prefer not to use HDFC Bank, Reliance Citibank and UTI Bank (now Axis Bank) credit cards," he says anger palpable on his face. He has different issues with these banks with respect to their customer care service and inefficient management.
While the number of credit card users is increasing rapidly in India so are customers' complaints against them. For young and upwardly mobile credit card users like Pradeep an issue like a credit card company not having a toll free number or an unresponsive customer care service is reason enough to chuck aside the plastic that gives them instant purchasing power.
He stopped using UTI Bank credit card because of the same reason. "I hate the fact that UTI Bank credit card doesn't have a good customer care centre," he retorts failing to understand why a thing as fundamental as customer service is ignored by the bank.
"While ICICI Bank has a phone inside their ATM booths UTI doesn?t even have a toll free number where we can register our grievances," he says justifying why he has stopped using the latter's service.
Today Pradeep prefers using his HSBC, Citibank, Barclays, and ICICI Bank credit cards because they offer him facilities like converting his purchases into equated monthly installments -- which he can easily afford -- at very low interest rates.
However there are two things that he doesn't like about credit cards in general and wishes these to change. "When we go abroad we can't withdraw that country's currency from ATMs there; we can only shop. That's the most disgusting part."
Also, the fact that some retail merchant outlets charge two per cent of total purchases for using credit cards annoys him. He thinks that it is the duty of credit card companies to "strictly deal" with such merchant outlets.
Pradeep owns as many as 7 credit cards from different banks but uses only four. "I prefer not to use HDFC Bank, Reliance Citibank and UTI Bank (now Axis Bank) credit cards," he says anger palpable on his face. He has different issues with these banks with respect to their customer care service and inefficient management.
While the number of credit card users is increasing rapidly in India so are customers' complaints against them. For young and upwardly mobile credit card users like Pradeep an issue like a credit card company not having a toll free number or an unresponsive customer care service is reason enough to chuck aside the plastic that gives them instant purchasing power.
He stopped using UTI Bank credit card because of the same reason. "I hate the fact that UTI Bank credit card doesn't have a good customer care centre," he retorts failing to understand why a thing as fundamental as customer service is ignored by the bank.
"While ICICI Bank has a phone inside their ATM booths UTI doesn?t even have a toll free number where we can register our grievances," he says justifying why he has stopped using the latter's service.
Today Pradeep prefers using his HSBC, Citibank, Barclays, and ICICI Bank credit cards because they offer him facilities like converting his purchases into equated monthly installments -- which he can easily afford -- at very low interest rates.
However there are two things that he doesn't like about credit cards in general and wishes these to change. "When we go abroad we can't withdraw that country's currency from ATMs there; we can only shop. That's the most disgusting part."
Also, the fact that some retail merchant outlets charge two per cent of total purchases for using credit cards annoys him. He thinks that it is the duty of credit card companies to "strictly deal" with such merchant outlets.
'I own four cards... but use only two'
Email this Page Write to us
Back --> -->
Next
'I own four cards... but use only two'May 5, 2008
We asked Get Ahead readers about what they love and/or hate about their credit cards. Here are some of their interesting responses.
Shailesh DubeySenior Analyst, Deloitte Support Services India (P) Limited - OS&T
Here are some of the points I need to share with you with reference to credit cards loans:
How appropriate to talk about the pros and cons of credit cards when the creditworthiness of the individual is getting increasingly questioned in a volatile economy.
I own four credit cards (Citibank, ICICI, BarClays, and HSBC) and prefer to use just two (Citibank and ICICI).
Reasons: Well, friendly customer care, especially Citibank. ICICI needs to pull up its socks to get things moving. Often, their customer care executive sounds like they are just back being harangued from a vegetable market.
Both Citibank and ICICI have great offers for their platinum cardholders which kind of gives a feeling of being truly privileged.
Both Citibank and ICICI do offer EMI options for your purchases, however, they need to tweak the interest rate because when they get cumulated, they become exorbitantly high.
ICICI bank should modify their reward-point redemption programme and should include some more merchants in every cities (like Citibank).
Back --> -->
Next
'I own four cards... but use only two'May 5, 2008
We asked Get Ahead readers about what they love and/or hate about their credit cards. Here are some of their interesting responses.
Shailesh DubeySenior Analyst, Deloitte Support Services India (P) Limited - OS&T
Here are some of the points I need to share with you with reference to credit cards loans:
How appropriate to talk about the pros and cons of credit cards when the creditworthiness of the individual is getting increasingly questioned in a volatile economy.
I own four credit cards (Citibank, ICICI, BarClays, and HSBC) and prefer to use just two (Citibank and ICICI).
Reasons: Well, friendly customer care, especially Citibank. ICICI needs to pull up its socks to get things moving. Often, their customer care executive sounds like they are just back being harangued from a vegetable market.
Both Citibank and ICICI have great offers for their platinum cardholders which kind of gives a feeling of being truly privileged.
Both Citibank and ICICI do offer EMI options for your purchases, however, they need to tweak the interest rate because when they get cumulated, they become exorbitantly high.
ICICI bank should modify their reward-point redemption programme and should include some more merchants in every cities (like Citibank).
Saturday, April 19, 2008
How credit card issuers have fleeced me-an artice by Nandita Mallik
How many times have you been fleeced by banks on credit card payment and how many times have you vowed not to use them any more? A zillion times, I bet.
But you broke the promise faster than you made it -- in the face of an emergency or sheer greed. Credit cards are now an inseparable part of our lives. Unfortunately, so are some of these unscrupulous banks.
As if things were not bad enough earlier, now you have to deal with the call centre 'executives' -- who address you as 'Sir', even though your name and voice sound quite feminine and who politely threaten to charge 'late fees' for not paying the bill even though your bank statement shows that the amount had been duly deducted from your account.
These 'executives' conveniently call you on your mobile phone at odd hours and try to peddle insurance products, including one that pays you if you break your bones. My powers of tolerance keep me from telling them that I hope someone breaks their bones and then the bank can pay them the insurance money. But one of these days, I might do just that.
For the past few months I have had some hilarious, and some utterly infuriating, experiences with banks and credit cards and thought of sharing them with you: not just to vent my frustration, but also to ring a warning bell.
Please be careful, please read your credit card statements properly. Also please keep a record of all the freebies (read 'life-time free card' offers, etc) that banks promise.
I will start with the most recent. Last evening, when I looked at my XYZ Bank credit card statement, I was surprised to find that I owed the bank Rs 2,000 as membership renewal fee, plus service charges and education cess. Nothing wrong with that: only that the card was supposed to be a life-time free card, hence there was to be NO renewal fee.
When I called the 24-hour customer service this morning the lady at the other end, while being extremely cooperative, informed me that I have two options. One, pay up the amount; two, reverse the amount so that it becomes zero balance!
I told her, that I have two options in mind. One, NOT pay the amount; two, return the card. To which she hastily added that she was reversing the amount and the next statement will be zero balance, if, of course I do not make any transactions on it.
Point to note: Please read your credit card statements very carefully. Since there was no transaction on this particular card, the amount stood out and was easily noticeable.
Then there's another card that I have; from a bank that 'never sleeps.' It's a different matter that they let others sleep very little too.
Last year I made a transaction of about Rs 50,000 on the card. And have since then paid the minimum amount without checking the details. An extremely foolish thing to do, I agree.
One sunny morning, my muddled brain got activated and I decided to read the details. It was then that I realised that I was paying an EMI (equated monthly instalment) of Rs 2,500, plus service charges plus charges for transactions made this year plus education cess. EMI? For what, I asked myself and then the 'executive' who answered my call.
He very politely pointed out, "It must be for the loan that you took." Duh! Loan? What loan? I have not taken any loan. He again said, "Madam, you must have forgotten about this loan." Now, I might be a nitwit, but such a big one?
I allowed the blood to flow all the way up to my rusted brain and then requested him to check and tell me when did I take this 'loan.' He said he can give me the information only after making some mandatory verification. I said, go ahead, since they are my details I know them by heart, nitwit or not.
So he rattled off the questions and just when I could feel the blood rising once more, he asked me about the last transaction I made. I gave him the exact figure. "Last payment you made, madam?" I gave him the exact figure. "The two payments you made before that, madam?" Well, here he stumped me. I gave him the approximate figures. Very apologetically, he told me that he needed the exact figure as this was sensitive information. Sensitive? All I wanted to know was when I took that 'loan' for which I was paying through my nose.
So the next day I again called the bank, armed with five card statements. After the verification, I came to the crucial question. When did I take the loan? In September, I was told by a girl this time. I took a loan in September? "No madam, you converted the transaction of Rs 50,000 to the EMI format in September."
I almost fell off the chair. To cut a long story short, she said that 'executives' from the bank had called on my mobile phone and I had agreed to the 'offer!' Did I sign any papers? Can she provide me with some proof? What about the interest rate being charged? And for how long would I be paying this EMI? "No, madam, such things are done over the phone and involve no paperwork."
Before you jump to the conclusion that I indeed have really rotten memory, let me state that I was in a hospital bed gasping the whole of September and most of October!
Point to note: DO NOT believe anything these 'executives' say over the phone unless the bank sends you proper documents.
Which leaves me wondering, will these banks dare to act likewise in the West? Or is such treatment reserved for Indians? Forget about the West, will they be allowed to get away with such harassment in some other Asian nations, say China, for example?
Of course, the least said about their SMS service the better. This month, I first received an SMS from a bank of whose card I hold stating that they have received a check of Rs xxx, subject to realization. Then came a threatening call that if I don't pay up the bank will have to penalise me! Then comes a 'reminder SMS,' that the due date is such-and-such.
And all from this from a bank that doesn't sleep! Lack of sleep is honestly affecting their efficiency. At least, in India.
But you broke the promise faster than you made it -- in the face of an emergency or sheer greed. Credit cards are now an inseparable part of our lives. Unfortunately, so are some of these unscrupulous banks.
As if things were not bad enough earlier, now you have to deal with the call centre 'executives' -- who address you as 'Sir', even though your name and voice sound quite feminine and who politely threaten to charge 'late fees' for not paying the bill even though your bank statement shows that the amount had been duly deducted from your account.
These 'executives' conveniently call you on your mobile phone at odd hours and try to peddle insurance products, including one that pays you if you break your bones. My powers of tolerance keep me from telling them that I hope someone breaks their bones and then the bank can pay them the insurance money. But one of these days, I might do just that.
For the past few months I have had some hilarious, and some utterly infuriating, experiences with banks and credit cards and thought of sharing them with you: not just to vent my frustration, but also to ring a warning bell.
Please be careful, please read your credit card statements properly. Also please keep a record of all the freebies (read 'life-time free card' offers, etc) that banks promise.
I will start with the most recent. Last evening, when I looked at my XYZ Bank credit card statement, I was surprised to find that I owed the bank Rs 2,000 as membership renewal fee, plus service charges and education cess. Nothing wrong with that: only that the card was supposed to be a life-time free card, hence there was to be NO renewal fee.
When I called the 24-hour customer service this morning the lady at the other end, while being extremely cooperative, informed me that I have two options. One, pay up the amount; two, reverse the amount so that it becomes zero balance!
I told her, that I have two options in mind. One, NOT pay the amount; two, return the card. To which she hastily added that she was reversing the amount and the next statement will be zero balance, if, of course I do not make any transactions on it.
Point to note: Please read your credit card statements very carefully. Since there was no transaction on this particular card, the amount stood out and was easily noticeable.
Then there's another card that I have; from a bank that 'never sleeps.' It's a different matter that they let others sleep very little too.
Last year I made a transaction of about Rs 50,000 on the card. And have since then paid the minimum amount without checking the details. An extremely foolish thing to do, I agree.
One sunny morning, my muddled brain got activated and I decided to read the details. It was then that I realised that I was paying an EMI (equated monthly instalment) of Rs 2,500, plus service charges plus charges for transactions made this year plus education cess. EMI? For what, I asked myself and then the 'executive' who answered my call.
He very politely pointed out, "It must be for the loan that you took." Duh! Loan? What loan? I have not taken any loan. He again said, "Madam, you must have forgotten about this loan." Now, I might be a nitwit, but such a big one?
I allowed the blood to flow all the way up to my rusted brain and then requested him to check and tell me when did I take this 'loan.' He said he can give me the information only after making some mandatory verification. I said, go ahead, since they are my details I know them by heart, nitwit or not.
So he rattled off the questions and just when I could feel the blood rising once more, he asked me about the last transaction I made. I gave him the exact figure. "Last payment you made, madam?" I gave him the exact figure. "The two payments you made before that, madam?" Well, here he stumped me. I gave him the approximate figures. Very apologetically, he told me that he needed the exact figure as this was sensitive information. Sensitive? All I wanted to know was when I took that 'loan' for which I was paying through my nose.
So the next day I again called the bank, armed with five card statements. After the verification, I came to the crucial question. When did I take the loan? In September, I was told by a girl this time. I took a loan in September? "No madam, you converted the transaction of Rs 50,000 to the EMI format in September."
I almost fell off the chair. To cut a long story short, she said that 'executives' from the bank had called on my mobile phone and I had agreed to the 'offer!' Did I sign any papers? Can she provide me with some proof? What about the interest rate being charged? And for how long would I be paying this EMI? "No, madam, such things are done over the phone and involve no paperwork."
Before you jump to the conclusion that I indeed have really rotten memory, let me state that I was in a hospital bed gasping the whole of September and most of October!
Point to note: DO NOT believe anything these 'executives' say over the phone unless the bank sends you proper documents.
Which leaves me wondering, will these banks dare to act likewise in the West? Or is such treatment reserved for Indians? Forget about the West, will they be allowed to get away with such harassment in some other Asian nations, say China, for example?
Of course, the least said about their SMS service the better. This month, I first received an SMS from a bank of whose card I hold stating that they have received a check of Rs xxx, subject to realization. Then came a threatening call that if I don't pay up the bank will have to penalise me! Then comes a 'reminder SMS,' that the due date is such-and-such.
And all from this from a bank that doesn't sleep! Lack of sleep is honestly affecting their efficiency. At least, in India.
Monday, March 17, 2008
Using credit card? 7 points to note
Traditionally, Indians have been quite averse to buying on credit. Don't look too far; just ask your dad if he purchased as much on credit, as you probably are now, thanks to your credit card. Your dad probably never owned a credit card and if he did, he probably preferred to use it only in emergencies.
But that was in the past; among the many customs and trends that have undergone a change over the last few years in the country, credit card usage probably ranks very high.
Technically speaking, a credit card is an unsecured loan. This means that unlike a secured loan, which is advanced by a bank/financial institution against a security like property for instance, a credit card is offered without any security.
In a secured loan, if the borrower fails to make good on his principal/interest commitment, the bank/institution can seize the security as compensation. In an unsecured loan like a credit card that is not possible. Hence banks take necessary steps to ensure that only those meeting certain parameters are qualified to use their credit card.
Without getting into how you can qualify for the credit card, let's understand how you must use your card once you have qualified for one. Credit cards have their pros and cons, which explains the good and bad that get reported about them.
Not surprisingly, many of the negatives that get written about credit cards are related to expenses, hidden or otherwise, that the user did not know (or was not informed) at the time of opting for the card. To avoid distress at a later date, we have listed down some points that you must note while using the card:
1. Term and conditions
How many times have you read this before - read the terms and conditions carefully before signing up for anything. For every product you purchase or service you opt for, always read the terms and conditions and that includes credit cards. If you find anything in the terms and conditions of the credit card that was not conveyed to you or is contrary to what was conveyed to you, then seek a clarification from the bank. If you are not satisfied with the clarification, dump the card.
It's important that you read up on the terms and conditions before you use the card and not after. Once you use the card, it is assumed that you have read the terms and conditions and have accepted the same.
2. Annual fees
It is common for banks to waive off the annual fees/membership fees in the first year (cards are usually issued for at least two years). The second year fees are usually charged. It is possible that you are promised that the second year's fees will be waived off as well. The only way to find out is to check with the bank in the second year.
It is possible that the bank may waive off the fees based on your track record of making timely payments. If the bank does not waive off the fees in the second year, you can cancel the card. However, if you wish to cancel the card in the second year ensure you do so before using it, because using the card indicates that you have agreed to pay the fees/charges for the second year's subscription.
3. Lifetime free cards
Offering 'lifetime free credit cards' is a relatively new trend in the credit card industry. While there was a time when most banks charged annual fees on their credit cards, the industry is graduating to a level where annual fees are being phased out. In effect, clients are being given lifetime free cards i.e. no annual fees are charged. However, its best to double-check with the bank what the executive has promised you about all annual fees being waived off.
4. Minimum payment
One detail you will find relatively well highlighted in your monthly account statement is the Minimum Payment Due. This is the minimum amount that you must pay for the purchases done in that month so as to not attract a penalty for default on payment of card dues.
We would recommend that you pay the entire sum to the extent possible. Buying on a credit card is okay till the time you pay your bills religiously. The moment you carry forward your payment to the next monthly cycle, you will have to pay interest on the unpaid amount along with taxes. In the final analysis this turns out to be very expensive.
5. Payment by EMI
On the same lines, whenever you make a large purchase (usually over Rs 10,000, although the amount varies across banks) you may get an offer from the bank to opt for the EMI (equated monthly installment) facility to make the payment. This facility does not come cheap and the interest on the EMI is prohibitive. Again to the extent possible, we recommend that you make the payment before the due date in one go and give the EMI facility a miss.
6. Borrowing cash is expensive
Credit cards can be used for making purchases on credit as also for borrowing cash. While making purchases on your credit card (so long as you pay on time) is okay, borrowing cash on your credit card is a very expensive affair. Avoid borrowing cash on your card; use the card to the extent possible for making purchases.
7. Insurance benefit
Many credit cards are known to offer an insurance cover. We recommend that you ignore this benefit and go for the core offering - credit card. If the card has features that suit you, then you can opt for it even if there is no insurance cover. On the other hand, if the card features are not to your liking then reject it regardless of the insurance cover.
In any case, on most occasions the insurance cover is usually linked with so many terms and conditions that it is very difficult to claim the same. It is altogether another thing that the insurance cover is unlikely to be sufficient for you
Subscribe to:
Comments (Atom)