credit card holders india

How credit cards can make money for you

2010-06-01T06:14:00.000-07:00

Credit cards of late have a negative connotation, and are pronounced as complete no-no by many, because of the high interest rates that are charged on late payments/defaults.

Don't let this negativity cloud perception of the product. You would be surprised to know that, if you are judicious in using this product, you stand to benefit monetarily, and of course it eliminates the need for you to carry cash everywhere.

More often than not the problem is that people do not understand the product well and hence are not able to use it to their advantage.

The credit card company offers you a 'free credit period' of around 50-55 days. The misconception most people have is that this free credit period is from the date of purchase. It is actually from the date of billing. E.g. Mr Anand's billing cycle date is December 28 to January 27 and his credit free period is 50 days.

If his purchase was on January 22, he would enjoy credit for 25 days. However if he made the same purchase on say Jan 1, he would enjoy credit free period of 47 days. So if you plan properly, you can enjoy maximum credit every month, which will help you manage your cash flows effectively, and will also help you earn the extra bit of interest on the cash that you have currently not spent on making the purchase.

In addition to the free credit period, every purchase made on your credit card, earns you reward points which when accumulated to a big amount can be exchanged for a range of items such as electrical appliances, flight tickets, home ware etc. These rewards will differ from company to company.

Also credit card companies offer discounts, promotional offers with respect to shopping, entertainment etc. For example, if you buy petrol from a particular brand of petrol pump, you get a small percentage of money credited back to your account after a certain number of days.

For the credit card to make money for you, two key things you need to keep in mind

Cost of default: The interest rate on defaults ranges from anywhere between 2 per cent-3.5 per cent per month. So in effect it is a whopping 24 per cent-42 per cent p.a. Also, the interest starts from the date of purchase and not the billing date i.e. you do not get any interest-free credit period and all future purchases also start attracting the interest charges from the date of purchase.

So use the credit card if and only if you're sure of having the means to pay the bills in time. Also, don't forget that your credit score will get impacted too which will impact your future borrowing.

Credit limit: Keep a tab on your credit limit. Overshooting your credit limit will also have dire consequences for you with respect to the interest charged and your credit score.

How do you ensure that your credit card makes money for you?

Widen the usage of your credit card (small and big purchases): You might as well earn bonus points and interest on the cash that you have not currently used, to make the purchase. You can use the credit card to pay monthly rentals, grocery bills, utility bills, gift expenses, subscription expenses etc.

So the cash that you have not used to make the purchase will earn interest for you or will be used for fulfilling other immediate needs. For example, Maitali purchased an electrical appliance for Rs 28,000 using the credit card she possessed. The purchase was made such that she could enjoy a credit free period of 45 days. The cash that she would have used to purchase this appliance is now lying in her savings account which is earning her an interest of 3.5 per cent p.a.

So if she decides to pay the bill after enjoying 40 days of free credit, she earns an interest of Rs 107 in her savings bank account. Not only that, she has also earned some reward points on the purchase. The other advantage of using the credit card is your payments are recorded which makes it easier for you to keep track of your expenses.

Appropriate use of bonus points: Use the bonus points that have accumulated on buying necessities (house hold appliances, clothes, groceries etc.) rather than using it on things (luxuries) that aren't really important to you. Only if the bonus points are used practically, you are actually saving cash.

Conclusion

Credit cards if used prudently will help you in managing your cash flow better, and at the same time, will provide you monetary benefits. That's because you get interest free money for some period of time and you also earn reward/bonus points on the same.

But if you use it without deliberation, it can prove to be disastrous as interest rates charged on payment delays are very high. Also, your credit rating will take a beating, as banks report these things to the credit rating agencies, which in turn will include it as part of your credit report.

Don't forget that credit score will not only determine whether you will get a loan but will also determine at what interest. Let not easy availability of credit and attractive rewards offered fool you into making impulsive purchases. It will prove to be rather costly.

Managing your credit card

2009-10-18T19:41:00.000-07:00

A credit card is a useful tool, when managed judiciously but a lurking danger if you mismanage it. Currently, threatened by the global financial crisis banks are changing credit limits, doing away with interest free periods and charging higher interest rates on the credit borrowed. One of the first things you need to keep in mind, is read the term and conditions when you apply for a credit card. It could be a laborious process but something that has to be dealt with, to protect yourself from any rude surprises that might be in store for you in times like this.

One hears stories of money being taken from the savings account of a person who has a credit card with that particular bank! Well, banks are allowed to do so, when a default occurs, the clause is covered in the terms and conditions. Banks also have an auto debit facility to claim a minimum payment on credit borrowed, if in case your account does not have enough funds, banks are allowed to levy a fine, which could be ridiculous amount that is nearly half the amount you borrowed!

Profit from your credit card !
Credit cards can be useful when you make a profit out of it! Now, how is that possible? Well, it all depends on the kind of card you purchase, its best to opt for a lifetime free credit card that does not have an annual fee attached. Also get a card that matches your lifestyle. If you shop a lot, see that your card offers a lot of discounts and cash back rewards for the all the shopping you do with a card. If your job allows you to make frequent trips, get a card that gives you several travel friendly schemes on eating out, hotel stays and airline ticket discounts.

High interest rates

Though the whole point of having a credit card is to provide you with cashless convenience, it makes money sense to decide, when, how and why you should use it. Never get tangled in the web of debt, especially when it comes to credit cards. Though its an ideal resource to tap into, when you need to ramp up funds quickly, the interest rates charged on a credit card are much higher than even those charged on personal loans. Remember that cash withdrawals from an ATM with your credit card will be charged a processing fee of around 2% and an even higher rate of interest than your regular purchases on the card.

Taking a loan on your credit card

Most credit cards do offer an EMI facility to pay any loan you take on your credit limit. It normally takes just one or two business days to obtain this loan and this can even be arranged over the phone with no documentation. However, the difference lies in the high interest rate charged, which can be as high as 30-42% as an annualized rate. The cards that offer a comparatively lower interest rate in the range of 22-26% most often do not have an EMI facility for repayments.

Though credit cards seem like a good bet for short term fund requirements refrain from using it, unless you can make the credit card usage count for some kind of benefit. Using your credit card purchases for an interest free period is fine, however remember the bank can do away with interest free periods anytime it chooses to and also hike the interest rates, according to its free will. Hence, be wary of a credit card and use it sensibly.

Another important aspect in manging your credit card is to keep a careful tab on your credit card statement that should reach you on a monthly basis.

Understanding your credit card statement

Scrutinize your credit card statement to understand your spending pattern. If a bill does not arrive on time for you to pay your dues report to the bank immediately. Also keep track of the credit card bill through your online banking account.

The first detail you need to clarify is your name, billing address, card number et al to make sure its correct. The second aspect is the total outstanding balance and current due date for payment. This column will also have the previous month's transaction using the card.

Minimum Payment Due

The second aspect to be scrutinized is the list of purchases or transactions done throughout that particular billing cycle. Go through each particular of them list to see if they match your expense records. Usually your statement will have a reference number that can be quoted if you feel any charge specified needs to be clarified.

Utilizing your reference number for billing errors and unauthorized charges

Always commit in writing within 60 days ( this time period varies from bank to bank) of the receipt of your statement the complaint regarding the billing error or unauthorized charges. Include all the following particulars in your complaint:

Your name, address, account number and reference number

Error description

The date and amount of the charge

Reason cited for the dispute of charge

Check your credit card statement if there is a specific address to which the complaint has to be sent to. This might be at the end of the statement or as part of the fine print, behind the statement.

Your credit card statement also has the other particulars like

Credit Limit
This is the maximum limit up to which you can make purchases or withdraw cash on your card. This credit limit can be revised by your credit card company depending on your credit score and your repayment track record

Available credit limit

This will be the amount you can still avail after you have made a bunch of transactions using the card.

Cash limit
This is the actual cash limit up to which you can withdraw on your card, which is included in your credit limit.

Statement Date
The billing cycle ends on a particular date after which the statement is printed, the interest rates applicable for your card transactions are calculated using this statement date as the starting point.

Total outstanding Amount Due
This includes past and present credit expenses and other charges levied to your account.

Reward Points Summary
This provides you cash discounts and other benefits on purchases made when accumulated over a period of time. This column contains all the past points earned and utilized by you till that particular billing cycle.

Grace Period
A grace period is the number of days you might get as relief before the high interest rates start kicking in for the remainder of the amount that is due. This can be anywhere between 20 and 25 days. However, remember you will be eligible for this grace period only if your previous month's outstanding amount has been paid in full.

Own a credit card responsibily
The responsibility of learning to use your card is imperative when you own a credit card. For this learning it is important for you to understand your credit card statement and, the terms and conditions associated with your credit card policy. Armed with this learning you can make the best out of this cashless convenience

Your 5-minute guide to credit cards

2009-10-11T05:01:00.000-07:00

Credit cards do have some benefits, but it's easy to get into financial trouble if you rely on them too much. Here are more than a dozen tips for using cards wisely.

Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.

No. 1 rule is: Pay off your balance every month. Otherwise, you'll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve. And although the Credit Card Accountability, Responsibility and Disclosure Act makes significant strides for consumers, it will likely make credit harder to get and more expensive -- and it doesn't take effect until 2010.

Protect your good name

Make your payments by the date -- and time -- they're due. Late fees are usually around $30 and can run higher. Late payments can also trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well.

Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score.

Read the fine print. Know the interest rate you will be charged, when your payment is due and your credit limit. The new credit card law sets out when interest rates can be changed, how your payment is applied, what the grace period is, who can have a credit card and much more. But keep in mind that these changes won't kick in until 2010.

Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee.

Don't exceed 30% of your credit limit on each card. Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.

The devil in the details

Credit card companies market different types of cards, featuring low interest, rewards or other benefits. Be careful about the terms.

If you're transferring a balance to a new card with lower interest, find out how much the company will charge for the transfer. Urge that it be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.

Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions -- for instance, you have to spend a certain amount to earn the reward.

Convenience? Sometimes

If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you're liable for no more than $50 for unauthorized charges.

Other "services" offered by credit card companies have potential drawbacks.
Contactless credit cards make it even easier to purchase items because you don't need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil.

Don't use "convenience" checks your credit card company sends you unsolicited in the mail. They're costly -- with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period -- and don't provide the consumer protection you get when you make a purchase with your credit card.

Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.

Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.

Good Luck Guys.

The truth about cash-back credit cards

2009-03-25T04:30:00.000-07:00

With increase in the competitiveness between different banks for credit card services, card companies offer a host of additional benefits such as rewards programmes, 'lifetime-free' services and cash-back offers increasingly nowadays to engage the brand awareness of the consumer consistently.

The hidden agenda behind each of these offerings is that the banks and financial institutions want the users to spend more. Spending is good as long as it is within predefined limits. This is within the user's control and must be exercised in order to reap the benefits of such offers and yet not become addicted to spending excessively.

Let's take a look at the features of one particular offering which has generated quite a following in recent times -- 'cash-back' offers, which are often promotional schemes for limited periods that are run periodically by all the credit card companies.

What are cash-back credit cards?

When accepting payment by credit cards, merchants typically pay a percentage of the transaction amount in commission to their bank or merchant services provider. Many credit card issuers share the commission with the cardholder by giving the card holder points, air miles or a monetary amount.

A cash-back offer is specifically for providing the card holder a small monetary amount as a reward for using the card.

Which transactions are included in cash-back offers?

Cash-back offers are valid on almost all kinds of expenditures or purchases done through the credit card. That is, besides spends on shopping and eating out, even balance transfers and bill payments are eligible.

How much money is returned through the cash-back offer?

Where a card issuer operates such a cash-back scheme, card holders typically receive between 0.5 per cent and 2 per cent of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card account or paid to the card holder separately, for example by cheque.

Cash-back percentage ranges around 2 per cent - 5 per cent for different cards and in some promotional schemes may even go up to 10 per cent exclusive to customers with a good credit profile.

What are the things to keep in mind while using cash-back cards?

There are some things that you should always keep in mind when you opt to avail such cash-back offers.

Where you are spending

The credit card cannot be used at any establishment that you choose. There will be a list of shops, stores, restaurants etc. that will fall into the category of cash-back transactions. If you spend at the establishments mentioned in this list you can avail cash-back, else you do not receive any reward.

The list of approved establishments is available on the credit card issuer's website or else can be asked for from the customer service department.

To ensure that you do receive cash-back, always ensure that you are spending at an establishment mentioned in the list of the bank's approved merchants.

Minimum cash spent

Normally, cash-back is offered only when the credit card holder spends a minimum amount on it. This could range anywhere between Rs. 1500 and Rs. 2500. So if you spend only Rs. 500 on the card, chances are very slim that you would be able to get any cash-back on that transaction.

Amount of cash-back

Normally, banks place a cap on the maximum amount of cash-back that it offers. It is important to check this because even if you have spent more doesn't necessarily mean that you are going to get a cash-back amount as per that transaction.

For example, if the bank's says that there would be a 10 per cent cash-back offer on all purchases, they would normally cap the maximum cash-back amount at Rs 1,000. So even if you spent Rs 40,000 and expected a cash-back of Rs 4,000, you are still going to get only Rs 1,000.

Other hidden requirements

Check for other requirements such as:

Whether the card falls under the offer category
Whether registration is required for earning cash-back
Should one apply for a new card meant only for cash-back
The period during which the offer is valid
Does the offer apply at outlets having point-of-sale terminals, or should the purchases be made only where the card-issuing bank has installed such terminals?
The products categories, which are eligible for the offer
Should cash-back be collected at bank branches, redeem them at the POS outlets, or will the amount get credited automatically in the card-holder's savings account
Using a cash-back card can be very good indeed, provided that you use the card smartly within its limitations.

As mentioned before, it is important to confirm the minimum amount to be spent to be eligible for cash-back and the maximum amount you can receive as cash-back, because if the delicate balance between the two is not struck correctly, you may be over-spending which can lead to interest charges.

These things can completely overshadow the benefits of a cash-back card.

Six Major Credit Card Mistakes

2008-11-03T06:55:00.000-08:00

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.

Is your credit card making you broke?

2008-08-28T02:05:00.000-07:00

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.

Credit cards are like nagging wives

2008-08-28T01:58:00.000-07:00

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!

How your credit card works

2008-08-28T00:36:00.000-07:00

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.

Why 'cash-back' never returns!

2008-08-28T00:29:00.000-07:00

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.

Credit card charges hiked by up to 50%

2008-08-25T01:06:00.000-07:00

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.

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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.

'Why should we pay two per cent charge on our credit cards?'

2008-05-05T20:09:00.001-07:00

"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.

'I own four cards... but use only two'

2008-05-05T20:07:00.000-07:00

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'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).

How credit card issuers have fleeced me-an artice by Nandita Mallik

2008-04-19T19:13:00.000-07:00

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.

Using credit card? 7 points to note

2008-03-17T07:49:00.000-07:00

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

Are you a credit card defaulter?

2007-05-10T05:16:00.000-07:00

Have you ever been blacklisted by a bank for not paying your credit card dues?

Do you know how to clear your name from this list? Do you know the consequences of being blacklisted?

Is the banking ombudsman genuinely of any help to credit card customers?

Do they take up your problem with the respective banks?

Do you know your responsibilities as a credit card customer?

In a chat with readers finance expert Harsh Roongta answered these and many more queries related to problems faced by credit card users.

Question: Dear Mr Roongta, this happened two years ago: I dropped a cheque in the Bangalore branch of my bank but the bank misplaced the same and it went to Chennai and hence they charged me penalty against delayed payments. In spite of lawyer notices, I refused to pay stating that it was the bank that was at fault. The bank had hot listed (black listed) my name. I came to know about this hot list as two banks declined fresh credit cards. How to get my name removed from this hot lists. I have a very good credit rating with four other credit cards (Citi, SCB ,HDFC etc). How does this hot list affect me?

Harsh Roongta : I suggest that you take this extremely seriously, since hotlisting in the credit bureau will affect your chances of getting any loan in the future. File a complaint with the banking ombudsman (http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=159) and insist on getting an official letter declaring you as a non-defaulter in this case.

Question: I hold a credit card from HSBC. I am regularly paying my outstandings before due date. One month when I had to go away to my hometown, I presented a cheque which dated as 27th February whereas my due date was 28th February. I dropped this cheque by 24th February itself as I was going away. But HSBC did deposit the cheque on 23rd itself and bank returned cheque saying post-dated with a penalty of Rs 100...again these HSBC guys charged me Rs 350 + service tax for postpaid cheque. Later on my insistence they waived off all the charges but I was made to pay Rs 100 to the bank for post dated cheque...My question is why are they presenting the cheque without waiting for 2-3 days when my due date was on the 28th?

Harsh Roongta :I think as consumers we should also have realistic expectations of what the bank can deliver. Almost all banks provide bold display print on their bills to not put post-dated cheques in the collection boxes. Obviously given the volumes it is not possible for the banks to segregate current cheques from post-dated cheques. One suggestion would be to provide standing instructions for debiting a specific bank account on due date. Most credit cards provide this facility.

Question: May I know what's the profit the bank is going to make by issuing credit cards if the customers are paying the outstandings regularly with out any delay?

Harsh Roongta: Not too much. They make a small commission on the amounts spent by you at merchant establishments where you use the cards. Also there is income by way of fees, charges and interest should you happen to delay any payment.

Question: I have taken a BT (balance transfer) scheme of SBI favouring Citibank but the cheque issued got returned without clearing. Now SBI maintains the cheque is cleared whereas Citibank maintains the cheque has been returned. But I have been charged for the amount so what options do I have as a customer?

Harsh Roongta: If you have deposited the cheque with Citibank, then the cheque should have come back to you. If not, clearly Citibank is responsible for proving that the cheque has bounced. If the physical copy of the cheque has indeed come back to you, then the problem lies with SBI.
In either case, file a complaint with the concerned card issuer and if not addressed to your satisfaction in 2-3 weeks you should approach the banking ombudsman (http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=159). For the SBI card, you will have to file a general compliant on the RBI website as it is a non-banking finance company, NBFC, and is not covered by the banking ombudsman.

Question: Is the RBI Banking Ombudsman known to genuinely help customers by taking up their issues with the banks?

Harsh Roongta: It is a statutory body which can and does give directions which are binding on Indian banks. Please read the decisions given by them in the recent past. It is a very effective remedy. Just the mention of going to the ombudsman galvanises the banks and, in most cases, the queries are resolved at the bank level itself. Unfortunately, the banking ombudsman scheme does not cover NBFCs like SBI cards.

Question: I had a credit card and used it to the maximum limit. I was paying all my dues fine and on time. But one fine day I felt that the bank has earned enough because of me and stopped paying. After a period of time, the bank barred the payment facility from my card as I was overdue.
Now after about two years the bank is still sending me statements despite me telling them to cancel my card and today the late payment fee and the interest has multiplied many times and the amount due is more than Rs 4 lakhs. Tell me if the bank will pull me to courts? What if I am not in india or if I change my residence which the bank will never know. Please advice me as to how I should save my head?

Harsh Roongta:I would advise you to settle up with your bank. Your sins of non-payment will follow you in this digital age where you can and will be traced no matter what you do.

Question: I had closed a Stanchart card in 1996 after making a full and final settlement due to a fraudulent and disputed charge on my card. Since this was settled Stanchart has still listed me as a defaulter how can I get my name cleared from the defaulters' list?

Harsh Roongta : If the charges were indeed disputed and you have proof of that dispute, then I suggest you approach a good lawyer specialising in tort to take up your case.

Question: What is a Credit Bureau? Does it track everybody or only those who default on their loan payments? How is the tracking done (e.g PAN) etc?

Harsh Roongta: Credit Bureau is the banking equivalent of Orwells Big Brother which keeps track of all your repayments -- good or bad. Several things are used to match up records including PAN, date of birth, name variations, etc.

Question: How do I protect myself from credit card payment recovery if my friend had spent on my card and willing to accept it on paper. Is it possible to have legal paperwork and ask the bank to chase the friend if he defaults in future? And what is the procedure for recovery?

Harsh Roongta : You are responsible for your credit card. The bank can and will seek recourse to you. Whether you recover the money from your friend or not is your outlook only. Credit cards require responsible handling and this lapse will probably make you more careful in the future about allowing other people to use your credit card.

Question: I don't have any outstandings on my credit card. I want to close the card during its validity period. How to go about it?

Harsh Roongta : Cut your card into 4 pieces and send it under acknowledgement due post to the address given in the billing statement.

Question: My credit card number and pin number was taken by one of my staff and he lost the details. Can they do online purchasing or payments through my credit card? What shall I do now? I have tried reaching the bank but they are not responding.. they asked me to send a hard copy to the bank requesting the same.. but in the meantime if somebody uses my card it will be a huge loss for me.. how to go about on this?

Harsh Roongta : Immediately call up the bank and report it as a lost card so that they can hotlist the card. Take an acknowledgment number for your hotlisting request so that your liability ceases from that time onwards. Most banks will however charge you a card replacement fee for issuing a new card.

Question: Could a bank use abusive language for recovering their dues?

Harsh Roongta: As per voluntarily adopted guidelines by the banking industry, this cannot be done.

Credit card problems? Here's help

2007-05-09T03:03:00.000-07:00

Do you know the interest rate charged by your credit card company on your purchases?
When do they charge interest and when do they levy a late fee?

Is there any service tax applicable on the goods that you purchase using your card?

Do you know how to go about filing a complaint against a credit card company for harrassment?

Can these companies employ illegal means to recover their dues?

Are you liable to pay your spouse's credit card dues in case of her/ his sudden demise?

In a chat with readers on May 8, Get Ahead personal finance expert Harsh Roongta answered these and many more queries related to credit card problems customers face.

For those of you who missed the chat, here is the transcript.

Question:, My wife was having SBI card which she got from SBI bank in PUNE. Afterwards whenever we had any inquiry, none of the bank employees were ready to help us. This is ridiculous for me as the bank which is giving me the card is unable to help us in case of any inquiry. What they say is you call the helpline number which is flooded with call and we have to hold our call for half an hour and we are paying for that.

Harsh Roongta answers, That is an understandable issue as the card is issued by a separate organisation which is a joint venture between GE and SBI, though the brand on the card is that of SBI alone. Your confusion is understandable though as all these are only technical matters as far as you are concerned. However, I am afraid, in your specific case you have no other alternative other than the help line number or the SBI cards website to lodge your complaint or make your query.

Question, What is the interest rate generally credit card companies levy if I my due after 52 days?

Harsh Roongta answers, Interest rates on most credit cards vary between 27 per cent to 40 per cent per annum (assuming you have paid the minimum due amount by due date). If you have not paid anything by the due date, then you will have to pay the late payment fee as well as overdue interest which will also be at a higher rate.

Question:Sir, I was using ICICI Bank's credit card. They have debited an amount of Rs 6,000 against the payment of MTNL telephone bill from my credit card. But I don't have any MTNL phone. After making lot of phone calls to their Hyderabad office, they are unable to give me any satisfactory answer. I have stopped all the payment for the same. Now, tell me what should I do to solve this matter.

Harsh Roongta answers, Please lodge an official complaint on the ICICI Bank website. If your query is not resolved within 2-3 weeks to your satisfaction, you should complain to the banking ombudsman in your area. The list of banking ombudsman is available on www.rbi.org.in

Question: Is there any service tax applicable if I buy any electronic goods through my credit cards?

Harsh Roongta answers, There is no additional tax on purchase of the item itself. However, if you do not pay the entire amount due on due date, then you will need to pay interest on the amount rolled over and on this interest there is a service tax chargeable.

Question: I am using the credit cards of almost 10-12 banks since last 7 years and have never faced any problem of any kind. Even you can say I have enjoyed a lot of offers, discounts, bonus points etc. Don't you think the main problem is with the credit card holder as they can't keep the proper record and timely check up of credit card outstanding?

Harsh Roongta answers, You are right, Kapil. Provided you keep proper records and pay your dues on time (do not use credit cards to borrow money), credit cards can be a real boon and convenience. However, if you are of the kind who cannot control your spending on impulse buys, then you should probably not use credit cards at all.

Queston:I did an online transaction with my credit card. First time before the transaction was over it threw some error. So I did it the second time. Now the same amount is coming to my bill twice. I have complained. They told you pay the bill amount minus the extra amount. What shall I do?

Harsh Roongta answers, Don't depend on any verbal instructions. File an official complaint on the bank's website and if they do not reverse one of the debits, complain to the banking ombudsman. Address and details on http://www.rbi.org.in/.

Question: I had an outstanding with SBI of Rs 2,700-odd amount and I received a call from ICICI for transfer of funds. I informed them to transfer Rs 3,000 and they transferred Rs 83,000 to my SBI card and now SBI is not refunding the excess paid to them of Rs 80,270.84. Kindly advice how can I get the refund at the earliest? It is more then 6 months now.

Harsh Roongta answers, Your best bet is to withdraw cash on your SBI card and deposit it back into your ICICI credit card account. Although you will end up paying a one time fee of about 3 per cent (about Rs 2,400 on Rs 80,000), atleast you will save on the interest that you must be paying on your ICICI Bank credit card.

Question: My bank says that they won't charge if late till 52 days. But still they charge the late fee and threaten to recover money the hard way. Please help.

Harsh Roongta answers, I think there is a lot of misunderstanding about the maximum free days allowed for payment. The maximum free days are available only for purchases made on the first day of the billing cycle. For purchases made on the second day you get only 51 days and so on till you get only 21 days for the purchases made on the last day of the billing cycle.
Also, the free period is not available if you have rolled over any amount in the past billing cycle. So my advice is please pay up the interest and fees that the bank is asking or you risk being reported to the credit bureau as a defaulter which will make it difficult for you to get any credit in the future.

Question: I owe the credit card company a huge amount and am finding it difficult to repay it. What can I do to clear my debt without putting too much of a strain on my financial situation.

Harsh Roongta answers, Unfortunately, there is no simple answer to your problem. Your past sins have a way of catching up with you. I would strongly recommend that you make all attempts to pay up the credit card dues in full. The bank may otherwise report you to the credit bureau as a defaulter making it difficult for you to raise any loans in the future.

Question: What happens if we don't pay credit card outstanding amount and is unable to pay back the personal loan EMIs? Do they employ any illegal means or just declare their card holder defaulter and put her/his name in the black list. Is there any thing to worry out?

Harsh Roongta answers, Well, there are serious economic implications in terms of not being able to access any loans in the future. Also, the bank will take legal action to get you declared as a defaulter which means all assets owned by you will need to be paid over to the bank to satisfy the liabilities. The process is no longer as slow as it used to be earlier, so I implore you to take this seriously.

Question: I found fraudulent transactions on my credit card. Several airline tickets were booked online using my credit card number; I disputed this with the bank and the bank says it is investigating the matter. What action should I take from my side.

Harsh Roongta answers, No other action required for the time being as long as the bank does not re-debit the amount to your credit card. If they do, you should complain to the banking ombudsman. Details on www.rbi.org.in.
Question: My husband lost heavily in business . In the meantime he has used credit cards excessively. In between he was not able to pay the premiums. Then he got a good job and then thought of paying regularly but with all the stress he had faced he collapsed had a massive attack and died. Now the credit card people are behind me. Am I responsible for those payments? He has no property nor any insurance. I am broke and started going for a job at the age of 52 what can be done?

Harsh Roongta answers, Unless you have inherited any asset from your husband, you are not legally responsible for the debts of your husband. If you have inherited any assets than you are responsible only to the extent of the assets inherited.
You should file an official complaint with the concerned bank on their website and complain further to the banking ombudsman (details on www.rbi.org.in) if the bank still does not stop the collection process.

Question: How to cope up with credit card dues payment? I have taken personal loan from ICICI credit card to pay my dues, but in monthly statements, they add principal+ interest + service tax. If I am taking loan from the same bank, of which I have a credit card then why do they put service tax on it?

Harsh Roongta answers, Any interest payable on a loan taken on a credit card is chargeable to service tax. A better bet is to take an independent personal loan from your bank and use it to pay off the credit card dues.

Quetion: Is it a statutory financial discipline on the part of the banker to warn/ alert the card holder if any abnormal transaction happens on her/ his account?

Harsh Roongta answers, There is no such legal requirement though most banks have fraud alert systems within their credit card authorisation systems. So, for example, your card may be declined if you have never in the past used it in a jewellery store and you may get a call from your bank on your mobile checking whether it was you who actually initiated that transaction. If you confirm, they may request you to re-swipe the card and approve it this time. But all this is not a legal requirement on the part of the ban

Chennai Credit card users' association launched

2007-05-07T08:57:00.001-07:00

CHENNAI: The Chennai chapter of the Credit Card Users Association was launched on Wednesday.
Talking to reporters, Credit Card Holders' Association of India general secretary C.V. Giddappa said the objective of the Association was to save innocent people from the clutches of bankers who harassed them. There were numerous complaints from people that, under the pretext of collection, they were threatened at odd hours and even detained illegally.
Many bankers issued credit cards to people without verifying their credit worthiness. This led the cardholders into a debt trap, Mr. Giddappa said.
The Association was organising "credit card surrender campaigns". So far, about 25,000 cards surrendered across the country had been sent to the banks concerned, he said. For details, contact Association's Chennai chapter president I. Arokiasamy and vice president S. Sabari Perumal on 94440-03336 or 044-25384061.

How to use credit cards wisely?

2007-05-04T21:08:00.000-07:00

Credit cards have become an integral part of your life. It's the impulsive buying that's inflating your credit card bills. Read these 10 tips on using credit cards that will keep you and your credit scores merry and bright.

1.Stay away from high credit balances and too many a/c

Charging high amounts to your credit cards and carrying them over month to month can lower your credit score, even if you are making payments. That's because the high balances could indicate that you may have bit off more than you can chew, financially speaking.
Don't open too many new credit or charge accounts. This affects your score -- it may indicate that you're spending more than you can afford.

2.If a creditor inquires about your credit score, it counts against you

Whenever you open a new account, a creditor will check your credit report. This is what's known as a "hard" inquiry, and it's figured into the formula for calculating your final credit score. Too many hard inquiries can, indeed, count against you. "Soft" inquiries, however, (such as when you inquire about your own credit report) do not get factored in.

3.Pick a card that fits your needs

There are all kinds of credit cards in the market -- those that offer airline, merchandise or travel rewards, those that offer extra warranties or accident insurance for electronics or travel and those that offer low, fixed interest rates. Depending on your needs and lifestyle, you should choose a card that can benefit you the most.

4.Have your name taken off of credit marketing lists

If you find it tempting (or just annoying) that credit card companies are mailing you marketing materials to get you to sign up for their cards, you can have your name removed from their lists.

5.Closing an account doesn't mean your score will increase

Depending on the situation, closing a credit account could actually hurt your score because it could increase the balance-to-limit ratio. However, it may also raise your score if you have too many cards open, or have no effect whatsoever. The card you choose to close can also make a difference. For instance, a card you've had for a long time that is in good standing may positively impact your credit score, so that would not be the one to choose to close.

6.Pay more than the minimum balance

The typical credit card purchase is, on average, 112 per cent higher than if using cash. That's because creditors make money from your interest payments. If you only make the minimum payment each month, you will end up paying much more than you intended to, and more than the purchase was worth. Even doubling the minimum payment means that you'll pay the card off twice as fast, and save yourself hundreds, if not thousands, of dollars in interest.

7.Know the credit lingo

Charge cards, credit cards and secured cards are not one in the same. A charge card, such as American Express or Diner's Club, requires that you pay the balance off at the end of each month. If you are late with the payment, you may be charged very high penalty interest charges.
A credit card, on the other hand, allows you to carry over a balance from month to month. However, it also allows you to accumulate interest charges. A secured card is a credit card that is backed by a bank deposit by the consumer. People who may not be able to get an unsecured card can often qualify for a secured card and use it to establish credit.

8.Credit risks

The criteria used in determining whether or not you qualify for a credit card is not set in stone and varies by creditor. In this way, you may qualify for one card but that doesn't mean you will automatically qualify for all similar cards. If you are ever denied credit, however, the creditor must give you a copy of your credit report, along with an explanation as to why you were denied.

9.Know your rights if your card is stolen

Consumers can dispute certain charges on their stolen cards and have limited liability if fraud occurs. The important things to remember are:
You are not liable for any charges on your card that appear after you've reported it stolen.

10.Try to use some self-control

Though you may be tempted to splurge on holiday gifts or other items knowing you don't have to pay right away, remember that the bill will eventually come. If you know you won't be able to pay for a purchase, don't buy it. Likewise, in the event you must charge a large amount of money for emergency purposes, set up a plan to get it paid off as quickly as possible so it doesn't spiral out of control.

Credit card: Remember these dos and don'ts

2007-05-04T09:56:00.000-07:00

How often have you missed out on that 'cash back' offer on your credit card?
Weren't you surprised when you were sent a pre-approved loan on your credit card at a discounted rate of interest?

While such gimmicks let credit card companies laugh their way to the banks, it is you who end up feeling miserable. To avoid such mistakes, here are some tips you may find useful.
Go through the various offers made by your credit card company carefully. Many people forget to do this and hence lose out good opportunities.

For instance, some periods are earmarked for cash back or reward offers. If you keep track of these dates and postpone or advance your purchases, you can reap those benefits. Credit card companies often send mailers or advertise such offers through different media, including their own websites.

Sometimes, if you book air ticket/s from a particular airline through your bank's credit card, you get a certain amount of cash back; this is usually as a percentage of the total amount you spent on the ticket/s. However, if you are not aware of this benefit, you may buy the same ticket through other means and not be able to avail of this offer.
Again, you need to keep your eyes and ears open to avail of such offers. The means to advertise them remains the same.

Very often, you will be told by your card company that you can have a DD or a cheque mailed to you as a loan since you are a 'chosen' or 'esteemed' customer. They also tell you that the interest rate for this loan would be less than the interest rate charged for a personal loan. Read the fine print thoroughly, and ask questions about it, before going for such offers.
For instance, the processing fee on this loan plus the service taxes and other undisclosed factors may nullify the 'less interest' charged on this loan.
In case if you've made a large payment on your credit card for any big purchase you may have made, say a television set or some new furniture for your home, you may get a phone call from your card company. They may say they'd be pleased to convert that particular payment into a 'flexi-pay' scheme in which you can pay the money back in installments.
Again, don't forget to check the cost of the processing fee and the eligible rate of interest. It could be considerable. In that case, if you have the money, just pay the credit card bill.

If your credit card bill and some other commitments are due around the same time, don't think twice... pay the card dues first. Take withdrawals from PF/ PPF or break that FD with your bank if possible. Don't get into a debt trap with the credit card company.
Try to always have your money (or be sure it's coming by way of your salary or in any other form from your employer) before you spend through your credit card. Maintain a record of the goods you buy on your card and keep aside (mentally) that much money in your savings bank account.
You could even tell your bank to pay the card bills through electronic clearing system, ECS. This is a mechanism whereby you instruct your bank to debit a fixed sum from your savings account on a particular date. The bank does it for you, provided you have enough money in your account.
This will ensure the first payment is made to the card company before the due date. As a result, you will maintain a good track record with your credit card company. You will also save the money you would have otherwise paid as the late payment charge because you missed paying your bill by the due date.
Read the card statement carefully (you could check it online if possible). Check if the 'cash back' amounts (if you are eligible for it) are credited; find out if you have got petrol surcharge reversed; if not, do alert the credit card company and get the error rectified.
I was once surprised to find that a sum of over Rs 150 was not credited to my credit card account. This was because the 'cash back' that was due to me was not reflecting in my bill statement. I called the help line official, who quickly corrected the error.

Some card companies advertise their 'toll free' help line numbers. Some don't. Try to find those phone numbers. Otherwise, for most of your queries, the hold time and talk time put together crosses several minutes. Without realising it, you may increase your phone bill if you're not using the toll-free line.
Don't ask for a duplicate statement (unless it's free). Check it online at the company site and take a printout for yourself.
In the US and the European Union, customers who pay their bill on time regularly get a reward for not being a liability for the company. If you pay your credit card bills promptly, you must check periodically with your company about increasing the credit limit or cash limit.
Last but not the least, DON'T withdraw cash from the ATM unless it is a real emergency since you will be charged the standard 2.5 per cent interest from the time you withdraw the money. Besides, you will also be charged a cash withdrawal fee. Instead, try to pay through a bank cheque or borrow cash from a friend that you could return soon.

Getting a credit card? Beware

2007-05-04T09:51:00.000-07:00

The credit card collection agent comes knocking at your door and you are not home. Ever faced such a situation?

Well, a friend of mine -- let's call him Amit -- did. Actually, he was in his office when the credit card collection 'agent' called. "You have a credit card outstanding of Rs 19,000 and you need to pay it soon," he threatened.

"No way," Amit replied firmly. "Not till you guys show or courier me the documents I signed while getting this card." This was not the first time he was being threatened by this particular bank's collection agents.

Seeing that he was not relenting, the agent used another trick -- he passed some obnoxious comments about Amit's wife. Amit, who is a tough nut, returned in kind.
Amit did not know the agent was standing outside his building and making that phone call. The agent went upstairs and threatened Amit's old parents (both heart patients) with dire consequences if their son didn't cough up the dues outstanding on his card. He was so audacious that he called Amit again and made him listen to this entire conversation. He also threatened Amit again.

This scared Amit. He called his mother and told her to call the police.
Before the police could arrive (surprisingly, they did arrive within 10 minutes of the call), the agent had vamoosed. In order to scare the agent, Amit's mother had told him she had made a complaint and the police were on their way.

In the evening, while on his way home, Amit lodged a non-cognisable offence complaint against the agent and the bank. Ironically, the inspector in charge dissuaded Amit from taking his grievance further.

"The next logical step," he told Amit, "would be to go that agent's office and arrest him. This would then lead to you filing a court case against the agent, his superiors and the bank. Don't you know how the courts function in India?"

The inspector knew perfectly well that this particular comment would dissuade Amit from taking further action. The inspector did not have a vested interest in not taking the case further; he just wanted to save himself some trouble.

Amit now decided to settle the matter once and for all. He went to the bank's collection office and met with the person in charge of his credit card account. He, too, was as rude as the collection agent and refused to hand over a copy of documents Amit had signed while filling his account opening form.

Now, here's a flashback. The bank in question had approached Amit to open a credit card account when he was working with a reputed company in Mumbai. Though he was a bit reluctant initially, he gave in after the agent told him it was a lifetime free credit card.

He would not be charged the annual maintenance charges that other credit card companies levy to keep a card active. The lure of saving some Rs 750 finally made Amit put pen to paper and sign on the dotted lines without reading the fine print and the clauses just above his signatures.
Remember that Amit was in his office and had no time to read the papers or ask the agent any questions. It was this error that resulted in the trouble he was facing now. Little did he know he was signing under a clause that allowed the bank to auto-debit his account in case if he failed to pay the minimum amount due on his credit card.

Auto-debit is a facility whereby the customer's bank account is linked his credit card account; if the customer fails to pay the amount by the due date, then the credit card company automatically debits the customer's account for that amount.

Oblivious to this fact, Amit was shocked one day to see his credit card bill showing an auto-debit of Rs 800. He would still not have noticed it had it not been for the auto-debit return charge, late payment fee charge billed on his account.

He was penalised since his bank did not have the requisite amount to pay the minimum amount due on his account; the credit card company had made an effort to collect the amount and failed to do so. This is the auto-debit return charge.

Since he had missed paying the minimum amount due on his card before the due date, he was charged with yet another penalty: the late payment fee.

When he called on the customer service executive, the female voice (they are just that; sometimes you are connected to an executive in Hyderabad and sometimes in Mumbai. There is no systematic way of making notes on an account like they do in America) told him that, since he'd failed to make payments for the minimum amount due on his account, the credit card company made use of the auto-debit facility.

As per the practice followed by collection companies in the US, each collection agent calling on a customer has to maintain a written note about the conversation between the agent and the customer. This helps other customer care or collection agents know the exact status of the customer's account.

So, if some other agent calls on the customer the next time, s/he knows what exactly the matter is. This had not happened in Amit's case for he had no idea if the agent he was speaking with was located in Mumbai or Hyderabad. Besides, he had already had a number of such conversations regarding the matter.

The agent told him that since there were no money available in his bank account, the auto-debit could not go through so he was charged an auto-debit return charge. As the payment was not made before the due date, they had also charged him a late payment fee.

Amit demanded a copy of his account opening documents; he did not think he had given the credit card company the right to auto-debit from his bank account.

The executive at the other end told him she couldn't do so as she did not have the documents. Even her senior, who finally came on the line, refused to promise he would send those documents.

Amit was adamant and said he would not make any payment on his card unless he saw the account opening form and his signature below the auto-debit clause (Wasn't it the agent's duty to tell Amit about this clauses at the time of opening the account? Of course, it was also Amit's duty to ask the agent about it, which, unfortunately, he didn't).

Interestingly, both the customer care agent and her senior refused to give Amit their employee ID numbers. Employee ID numbers help customers locate the person s/he spoke with (In the USA, for example, it is mandatory for the customer care/ collection agents to give their employee IDs under the Fair Debt Collection Practices Act, if the customer demands it).

After this, whenever the collection agent would call Amit for his outstanding dues, he would ask them to show him or courier the documents first. This went on for about two months. Finally, the credit card collection agent knocked on Amit's door.

Not the kind to get easily bogged down after his disillusionment with the inspector, Amit decided to seek recourse with the banking ombudsman. The ombudman, who is appointed by the banking regulator in India, the Reserve Bank of India, can redress customer complaints against certain deficiency in banking services. S/he can be reached at www.bankingombudsman.rbi.org.in. This website contains all the details about how to approach this authority and how to file complaints against banks in case of any grievances. It is a one-stop shop for people having grievances against banks and the method of redressal.

The ombudsman did send a notice to the bank. The bank replied that no such incident had ever taken place. Following this, the bank's credit card manager from Hyderabad called up Amit's mother and apologised, even as he said the person must not have been the bank's agent. The bank also sent a complimentary haversack to Amit to assuage his feelings.
Finally, the bank did send Amit a scanned copy of his account opening form. Amit did indeed see his signature below the auto-debit clause and promptly paid the outstanding balance. Of course, he asked for cancellation of all the late payment charges.

Remember, most penalties are reversible and the customer care agents do show promptness in canceling them if you have a good case.

As of today, Amit's case is still pending with the banking ombudsman. Here are certain points to keep in mind so that you do not suffer the same misery Amit did.

1. Always ask questions to anyone who offers you a credit card, bank loan, personal loan, etc.
Do not take them at face value. Double-check the information they provide with a couple of other agents belonging to different banks.
Finally, if you are not satisfied don't buy their products or services.

2. Ask them about the finer points. More often than not, they may themselves don't know about it. In that case, ask them for their product's official brochures.

3. Don't sign blindly on the dotted line (remember Amit whenever such an impulse strike you!). Scan through the various clauses under which you are putting your signatures.
Ask these agents for their ID cards. Even if most of them are third parties (that is companies appointed by banks to get these formalities done), they do have a proper ID card. Take down their employee ID number, their telephone number and the address of their office. You may need them in case of any problem with their product or service.

4. Finally, read through the fine print on your own. No one else can do this for you.

When your credit card is your enemy

2007-05-04T09:48:00.000-07:00

It was Diwali/Eid -- you could not really resist the temptation.

So you went berserk -- shopping, eating, entertaining, all on your credit card.
You're not really to blame -- after all, how often does one get to celebrate a nice, long festive weekend?

But, as the proverbial saying goes, good times have to come to an end. Reality sets in. Mundane tasks clamour for your attention. As will your credit card bill, when it lands on your doorstep.
Now, for the million-dollar question: What if you cannot pay it?

Well, you don't have any option but to 'revolve credit'. This means you pay part of your bill (five percent is the compulsory minimum) now and pay the rest later. It may sound convenient, even good, but remember -- revolving credit is not cool.

Here's why.

Let's assume you've run up a bill of Rs 25,000.
Since you don't have the necessary cash at the moment, you decide to use the revolving credit option and pay five percent of the amount -- Rs 1,250 -- now.

The balance (Rs 23,750) is carried forward and will be added to your next bill.
This is where the good news ends because the bank will charge you an interest of 2.95 percent on the pending amount.

Before you heave a sign of relief, remember this interest is charged on a monthly basis; per year, it works out to a whopping 35.4 percent!

At 2.95 percent per month, your interest on Rs 23,750 works out to Rs 700 a month.
So, if you don't use your card in the coming month, your next credit card bill will be Rs 24,450 (Rs 700 + Rs 23,750).

However, in that month, you happen to go out for dinner and the bill comes to Rs 1,000. You pay for it with your credit card.

Unfortunately, you are no longer enjoying the benefit of 'free credit'.
Earlier, you spent money through your credit card and paid up when the bill came at the end of the month.

From the time you spent the money till the time you paid the bill, you were enjoying free credit; when the bill came, you paid just what you spent (You do have to pay the annual fee as your cost for owning a credit card, but that's a minimal amount. There are, of course, reward points that work to your advantage, but that is something we will talk about another day.)

Now that you owe the bank money, you don't have the privilege of free credit anymore.
The Rs 1,000 you spent is added to your outstanding balance of Rs 23,750. You are now expected to pay interest on Rs 24,750. As a result, your total interest now works out to Rs 730. This means you now owe the bank Rs 25,480 (Rs 730 + Rs 24,750).

So
The more you spend, the bigger the principal amount you have to repay.
The more you spend, the faster your debt mounts.
The month after, your credit card bill is Rs 25,480. You still don't have enough money, so you use the five percent pay back option and pay the bank Rs 1,274. You now owe the bank Rs 24,206 on which they will charge you interest.

And, until you clear your loan, every single payment you make using your card will be added to your loan amount and you will be charged interest on it.
This will go on till every single rupee has been repaid.

With barely any effort on your part, you have just entered a debt trap in which you end up spending more than you make and more than you can afford to pay.

Lesson to be learnt: Use your card only as a convenience. If you use it to spend more than you can afford, all you do is end up losing a lot of money.

Are you revolving on your credit card?

2007-05-04T09:39:00.000-07:00

Just don't have the money to pay your credit card bill this month.

"Don't worry," the helpful customer service executive cooed. "Just pay five percent. We shall carry forward the rest to the next month."

Well, congratulations. You just began an intense love affair with your bank.
They are going to love you even more than you love them. Want to know why?
Because, now, finally, they can make a nice packet on you.

On all the money you owe them, they are going to charge you 2.95 percent per month. That works out to 35.4 percent per annum.
What's more, you even start paying interest on any purchase you make. Buy a book, and you have to pay interest on this amount.
What's the way out?
You have two options.

1. Stop using the card.
The moment you run short of funds and have to revolve credit, stop using your card.
In fact, if your amount is huge, leave home without your card. Use cash or even another card till you clear your debts on the one you are revolving on.
Use the card only if you are certain you will clear all debts by the next month.

2. Switch credit cards.
All banks want people to take their credit cards.
And, one way they try to get your attention (and loyalty) is by offering what they call 'balance transfer':
~They pay back all the money you owe your bank on your card.
~All the money you owe the bank is transferred to them.
~They then charge you a lower interest rate on that amount so you end up paying less.
Assume that you are shifting to a card from Bank B from a Bank A card.
Bank B gives you a demand draft (in favour of Bank A) of the amount you owe Bank A.
You then need to make that payment to Bank A.
Until you get the demand draft or cheque, you continue making payments to Bank A.
When Bank A verifies the balance transfer (they will send you a statement to that effect), you stop paying them.
Now, how do you save?
Say you owe your bank Rs 25,000 on your credit card. And are paying 2.95 percent interest on it per month.
Let's say you opt for a balance transfer and are offered 1.65 percent for six months, during which time you are determined to pay up every single rupee (and not use the card at all).
Every month, you pay Rs 4,150 (for 5 months). In the last month, you pay Rs 4,250.
After six months, you will have totally cleared your debt.
You will pay Rs 1,099 as interest rate totally.
If you had stayed on with the earlier card, you would have paid Rs 2,060.
By switching cards, you saved Rs 961 on interest payment.
The savings may not appear to be much, but that is because you have been paying back a fair amount every month and not using your card at all.

If not, the lower interest rate would have made a bigger difference.
If you would like to see how much you can save, take a look at the simulator on the HDFC Bank web site: http://www.hdfcbank.com/creditcard/transferandsave/cc_btsimulator.asp
What you must know:

1.You can't stay with the same bank.
You will not be able to transfer credit from one card to another within the same bank.
To avail of the balance transfer facility, switch cards to another bank.
For instance, if you are revolving credit on the HDFC Gold Credit card, you will not be able to switch to the HDFC Silver Credit card. You will have to approach HSBC or ICICI Bank or any other card player.

2. Check if you have an account with the bank.
If you are switching your balance to a new card, the bank issuing that card may give you a better deal if you have an account with them.
Currently, HDFC Bank offers account holders just 1.45 percent per month to transfer balance to its Silver card (as against 1.65 percent for non-account holders).

3. There is a minimum amount.
The more you have in revolving credit, the more the banks will want you on board.
In fact, each bank will have a minimum amount, which you must be revolving.
Anything below and you will not be welcomed. To give you an indication, HDFC Bank currently asks for a minimum of Rs 7,500 (all cards) and Rs 20,000 (Gold card).
HSBC asks for at least Rs 10,000 for a Classic card and Rs 20,000 for the Gold.
Citibank takes a transfer for as low as Rs 2,500, while ICICI Bank beats them at Rs 2,000.

4. There are limits.
The amounts must fall within the credit limits of the new bank. Depending the type of card, the bank will give you a credit limit.
This limit can be enhanced once you have a relationship with the bank. They will look at your income, spending and payment pattern.
Before they enhance it, they will go by the limits they put on each card. Beyond the stated credit limit, you will not able to spend on your card. And, the amount you are revolving must be within this limit.
HDFC Bank does not allow the balance transfer to be more than 75 percent (International Gold), or 50 percent (International Silver) of its credit limit.
HSBC and ICICI Bank has it at 75 percent of the credit limit.

5. It's not forever.
Always check the tenure of the rate of interest. Sometimes, it is for just a month, sometimes six months. After the fixed time slot, the market rates of 2.95 percent per month are applicable.

6. Your card should not be brand new.
Some banks insist that your card is not just a month in existence. HSBC will take over the balance only if your card is at least six months old.

7. You will pay for it.
Nothing is free. You will have to pay the processing fee to avail of the new card. One-time transaction fees are also charged. For instance, Citibank charges 1.5 percent of the amount transferred or Rs 200 (whichever is higher, of course).

8. Speed up on your repayment.
Make paying back your loan your priority. You have a lower interest rate for a few months. Use it to your advantage.
Do not use the card at all.

What the banks will not tell you is that when you use your card, whatever you spend on will get an interest rate payment. This interest rate will be 2.95 percent and not the cheaper rate.
So who is offering what?
The market rate for revolving credit is 2.95 percent per month.
When banks try to woo you to transfer your balance to their cards, they offer a monthly interest rate in the vicinity of 1.75 percent. This is generally offered for six months, after which 2.95 percent is once again applicable.

~ Citibank: 1.75 percent per month. If you transfer Rs 25,000 or above, you get 250 reward points free. The bank is offering this till November 30, 2004.
For more information, please visit http://www.online.citibank.co.in/portal/citi_home_center.jsp

~ HDFC Bank: 1.25 percent per month (International Gold Credit card); 1.65 percent per month (other cards). It drops to 1.45 percent per month if you have an HDFC Bank account.
For more information, please
visit http://www.hdfcbank.com/creditcard/transferandsave/CC_whatisbaltransfer.asp
~ HSBC: Zero percent per month. Interest rate valid for three months (not six). Instead of the minimum transfer amount of Rs 10,000, only Rs 3,000 is required.
The bank has not stated how long the offer is on for. It is only valid on the HSBC Classic credit card.

For more information, please visit http://www.hsbc.co.in/in/personal/cards/default2.htm
~ ICICI Bank: 1.75 percent per month (Blue and Silver cards); 1.50 percent (Gold Card).
For more information, please visit http://www.icicibank.com/pfsuser/cards/creditcard/cc_home.htm

~ Standard Chartered Bank: 0.99 percent per month. There are various options for 6/12/24/36 months.
While the web site says you can transfer your balance for an interest rate of 1.75 percent per month, a call to the 24-hour helpline will inform you which scheme is currently on.
For more information, please visit http://www.standardchartered.com/in/cb/creditcard/cardfeatures.html

~ State Bank of India: Zero percent per month. Interest rate valid only for 75 days, not six months. The bank offers this till November 30, 2004.
For more information, please visit http://ww.sbicard.com/sbi/balancetransfer.html

2007-05-04T09:32:00.000-07:00