Time was when people looked at Credit Cards with the same expression as they would trading on the stock market – a path bound towards doom. But despite a huge credit card base, even today, many apply for, obtain & use credit cards with scarcely any knowledge of its inherent advantages & disadvantages. This review is aimed at those in the above genre, so that, like Robert Kiyosaki (of Rich Dad, Poor Dad fame) would say, they can “Make Credit Cards work for them". If that grips you, read on. If not, you have already cleared the level where you need this information!
Let us start by understanding that Credit cards are a money-earner for all banks. They are in it for their profits, not your convenience, as they would like you to believe, courtesy their advts. But, you can make it a thing of convenience!
Usage and Payments: Crux is, when you pay by CC, you get to keep that amount of money in your account for a longer period. You need to pay back your dues within the last date specified in your credit statement. Now, this is where the Bank makes its money. Say, your due is Rs. 10K on your bill for 21 May – 20 Jun. The Bank gives you an option to pay a minimum amount, say, Rs. 500. You take that bait, and you join the list of card holders at the bank’s mercy! The Bank charges you a hefty rate (upto 2.5% or so) on the balance unpaid amount, right upto the time you repay the whole dues. That’s called rotation, where you end up rotating in the end!
If you pay using CC all your compulsory expenses, which you would anyway have paid in cash, in that month. The Bank sends you the statement by snail or e-mail. If you are the procrastinating variety, you wait for the last date of payment before depositing a crossed cheque in the nearest drop-box of the Bank. If you miss the date, again, you are charged a late payment fees. Now, this is another tricky situation. All these fees like late payment, interest etc are charged a further ‘tax on fees’, which amounts to about 12% or so, as per Govt rules.
So, how do you meet the deadline, pay only on the last date & not get charged for more than your spend? And, maybe, get some gifts in the bargain? Its simple, really! Make out a crossed cheque the day you receive your statement, date it for the last date of payment indicated, and drop it in the box! Let the Bank hold your post-dated cheque & wait for the last date. That’s what they are paid for!! Mind you, be sure to have sufficient funds in your account & not get into cheque-bouncing games, ‘cos thats a costly bargain these days, in case you didn’t know!
I’ll give you a spreadsheet of features & You can do the comparison. However, in order not to breach protocol, I shall surely suggest my recommendation!
First, the opening charges. Answer is, just don’t pay. Logic: At almost every petrol pump, you will be flooded with CC promoters, who give you everything free (even if they aren’t authorized to, often!). So why pick something which fleeces you even before you start off with them?!!
Next, annual charges. Again, you don’t need to pay. Logic: “If I take a new card Im not charged for the 1st year. So why should I, as a good old customer of your bank, be asked to pay in my second year? I’d rather take a new CC from someone else” Or, better still, “If there are other banks who provide good service and still don’t charge annually, why should I pay up?”. Chances are, you will still have the same card the next year, but be 350 to 1500 bucks richer by virtue of your 2 sentences! Now, the credit period. This is the period which you get, to pay back all your outstanding balances. This varies from 45-57 days. The longer the better. Customer Service too is vital in. Call the helpline numbers and check out responses. If they arent quick & eager with new customers, guess their response with existing ones!
Reward Points, wow! Look at it this way. You shop. The seller lets you pay after 55 days& only the exact amount, no interest. He gives you a gift worth Rs 2 on every 100 you spend.You don’t need to be a rocket scientist to figure out you’d be there every time you could. That’s exactly what you get, with a good CC. In my 7 yrs of being a CC holder, I am yet to pay any taxes, fees or interests. I spent only what I would otherwise, and paid up in full, everytime. Guess what the Banks did for me? They hiked my Credit Limit from a measly 25k in 99 to a comfy 1.5 L in 06. I swear, I never needed more than 30K for any billing cycle, this too having been during a wedding shopping spree, where someone paid me cash and I got the rewards. The banks ended up giving me useful gifts worth about Rs. 10K, till date. I redeem online, from their catalogues, and it gets delivered home free, in 2 weeks. Could you ask for more? Well…Yes!! Co-Branded cards are when your bank partners an airline, fuel company or a combination. eg: ICICI-HPCL card lets you tank up at HP, charges you only your spend sans taxes, gives you double reward points for that buy and, hooray, pays you 2.5% of your fuel bill back, every single month!Conclusion is, Credit Cards can only be a boon, and a big one at that. Personally, I am hooked on ICICI-HPCL Gold, since 7 years, and don’t think I’ll now part.
IMINT/ Payback: You may have heard or seen these, in relation to Credit cards. These companies do management of the redeemable points, and have tie-ups with multiple firms/outlets, where you can use the accumulated points to pay for purchases. You can also redeem the points online at partner sites. Don't believe? I have just redeemed my 3-years' accumulation and have got fuel vouchers for Rs 2500! Meaning, I have paid for everything by Credit card for 3 years, paid the dues after a 45-day 'free' period, and then, for that, they gave me 2.5K worth of free fuel! Wow, could it get better?! ICICI Cards had a tie up with IMINT, which has now been changed over to Payback. (Mrs Fanny Chakravarti, does that dispel some doubts? :))
Go Ahead, Happy Spending, at Bank’s expense!!
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