Jagoinvestor

March 11, 2010

5 Logical Tips about Credit Cards

Credit cards are becoming increasingly common in India, and while they come with a lot of convenience, the high interest rates and other charges mean that you have to be careful about how you use them.

In this post, we look at 5 tips on wise credit card usage, and how following them, can save you a whole lot of financial heartache. These 5 tips are pretty logical & self-evident; we have to understand that the free credit we get from a credit card is not really free. It’s actually a business for Credit card companies and hence somewhere in the whole process, they have to have a way to make money .

1. Pay your balance in full: This one is so basic, I was not going to point it out at all, but on second thought – I realized that this should really be the first point. Of all the loans you take, credit cards come with the highest interest rates. If you run a credit card balance every month, then the interest charges add up really quickly. If you have a balance on your credit card, pay it off in full before the next due date. This ensures that you don’t pay interest on your balance, which really is extra money you can keep to invest and build savings for yourself.

Curiously enough, I know of people who don’t pay off their credit card balance in full, but at the same time, put their money in low yield investments. This is really bad math. If you have a credit card balance that is charged at about 30% per annum and an investment that gives you just an 8% return – you are much better off paying the entire credit card balance before you even think of investing your money. The extra interest you pay on your outstanding balance offsets any interest income you receive from your investment. If you run a balance, realize, it normally is a strong indication that you are spending beyond your means.  This is a bad financial habit that you should get rid of as soon as possible.

2. Avoid credit cards with annual fee: Unless you have a specific benefit in mind, from the credit card, don’t get a card that has an annual fee. It is always good, to get a credit card with no annual fee, because then the only expense you have on it, is the interest payment; and if you pay off your balance in full every month – you don’t pay any interest and your credit card will, in effect, be free! Add to that, the fact, that even most free credit cards have some sort of a reward program, you can benefit from. Why pay for something when you can get it free?

The other thing to keep in mind, while evaluating the fee, is how likely you are to benefit on it, based on your usage. I reviewed the HDFC Value Plus Cash Back credit card a few months ago, which had an annual fee of Rs. 700 and up to 5% cash back. At a cursory glance, it seemed to me that Rs.700 may not be very high due to the cash back, but a deeper look at the terms and conditions told me, that the cash back will only be credited to your account if the monthly balance is over Rs.10,000. I realized the card was not meant for people like me, who aren’t likely to run up such a balance on their credit card every month.

Bottom-line: If you are going for a credit card that has an annual fee – make sure you go through the fine print and are certain it will be worth the cost to you.

Credit

3. Get a credit card that is easy to pay off: I used to have an ICICI credit card and a SBI credit card. Both of them had similar features, but the ICICI card was really easy for me to pay off, as I had an existing ICICI Bank account, and the credit card was linked to it online. All I had to do, was go online, and pay off the credit card balance, through my ICICI login. As a result, I ended up using the ICICI credit card a lot more than the SBI one. Ease of payment, means that I can pay off the balance very often, very easily, and rarely run the risk of late fees or interest charges. While thinking of which credit card to apply for – consider just how easy it is, to make a payment on it.

This might sound like a trivial thing now, but you’d kick yourself later, if you had to pay late fees just because you lost your cheque book, or were too busy with your work to go to the bank and deposit the cheque. In fact, I’d go on to suggest that you add payment reminders on your email, phone or even a little post it on your refrigerator. Life gets busy sometimes, and a little help can go a long way in saving you late fee and interest payments.


4. Keep a track of your statement: A few years ago I went through my credit card statement online and saw that there were some charges from an unknown merchant. I was pretty sure, I had not bought anything from them, and I called up customer care to know what the charges were all about. I was put on hold for a long time, and couldn’t get through. However, the next day, I noticed that the merchant had reversed the transaction, and I even had a small credit from them.

While I was lucky in this case, there is no guarantee that credit cards won’t get abused. Always keep track of your monthly statement. If you can go online and check your transactions – that is even better, because you don’t have to wait until the end of the billing period. I go online every week or so and check up on my credit card statement to make sure no unauthorized use is happening.

5. Don’t use your credit card as an ATM: By this, I don’t mean that you shouldn’t use your credit card at the ATM, (although you should really, really avoid it as far as possible). What I mean is, there’s a tendency to withdraw cash from your credit card (since it’s so convenient) and that’s pretty addictive. Treating your credit card as an easy, reliable, access to cash will not help you in the long run. For one, the interest rates on cash withdrawals are generally much higher, and if you get into this habit, – you will run up high outstanding balances pretty quickly.

The cash advance limit, is also generally, a lot less, than the overall credit limit, so it won’t get you very far, anyway. The interest will keep adding up and grow very quickly. Withdrawing cash from your credit card should really be the last option. Usually, cash withdrawals come with some sort of cash advance charges, and more than that if you regularly withdraw cash from your credit card – again, it indicates a tendency to overspend and go beyond your means. This really means, that your personal finances are going down-hill.

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Read a Customer review on Mouthshut

I have saved all my friends by sharing my horrible experiences with ICICI Credit Cards.The customer care people are polite only till the greetings other wise they behave and speak like a criminal and very sarcastically. I have been using it for 2 years. But the customer care behavior problem is consistent. Normally I have been paying them always on time and the bill is normally above RS 5000. But once (3 months back) I had to go outstation suddenly and missed the pay date for first time for a day or two. The amount this time was also very low (maybe 1500 or 1800) as compared to other months bills. I suddenly started getting calls from a HORRIBLY SPEAKING customer care lady. When I mentioned I am travelling and will not be able to pay for another 2 days as my journey is a 3 day journey she started abusing and threatening me. She even mentioned that by tomorrow morning if I will not arrange for the payment she will send some one to my home for payment, when I said this is rubbish and she should not speak like this she started shouting and said “I will send someone and can do anything if not payed by tomorrow and reminded me that if I will not pick this call after seeing her number further she will be worse”. Is this is the way a bank should treat a long time and good customer? I have stopped using the card from that day. [LINK]

Credit Card Mistakes [Video]

Conclusion

The overarching theme of these tips is, “Get the convenience of credit cards for free.” That’s what it really boils down to.

To me, credit cards make shopping convenient and that is a big benefit, but at the same time, they also tempt me to go beyond my means, and then pay extra by way of interest. The key is to get the benefit of convenience but not have to pay anything for it. The above tips will help you do both, or at the very least – strike a balance between the two. What do you think? Have I missed out any obvious tips or is there something you’d like to add, based on your experiences?

POLL

What is your Spouse’s level of Understanding and Interest in Personal Finance ?online surveys

Comments please ? Leave your comment to provide another tip 🙂 and let us know what you think about Credit cards .


This is a guest post written by Manshu from OneMint. If you liked this post, please consider subscribing to his site.

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Arghya
Arghya
7 years ago

Haven’t commented here for a long time. But here is what I do. I have a couple of zero annual fee credit cards, which I use to make transactions like 5/- or 10/- just to keep them active. All these cards have ECS setup with my bank account for bill payment so I do not need to worry about these payments. The only card that I use the most frequently is the Citi premiermiles card. i use that extensively, for example, putting all the grocery and bill payments on that card. When I have to travel overseas for work, I do not use my office card, rather use my own card and claim reimbursement. The outcome is, every year, I get almost 10-12K worth of airline miles. Just recently, I purchased flight tickets for my parents from Kolkata to Guwahati, through flyer miles.

I sometimes put large purchases on my card, but before doing that, I save that amount using RDs and once I have the money required, I create an FD for that amount for 20-25 days and liquidate it just before the bill due date. So, what happens, is: not just I am getting airline miles, I am also earning money on my FD.

Bunty
Bunty
8 years ago

I hold a Citibank credit card. Have an outstanding bill of 1.35 lakhs. Hold this credit card for close to 8 years.These days I pay a minimum balance of 6.8k every month as my other financial burden allows me to pay just about the minimum pay. I am in knee deep shit. I committed all the mistakes above that a stupid guy living in denial would do. Have to get thus burden off my back. Called up the bank for some options.

EMI – Bank says EMI option happens only on transactions from present day on. Not the outstanding balance or part of it. Not on any major transactions in the past.

Redeemable rewards – I have 4982 redeemabme points. Thought I could redeem to pay the card bill.Atleast some burden is reduced. every drop counts. Bank people say, I can redeem back to credit card balance only after reaching 5000 points. And 1 point is not 1 rupee, but 30 paise. So even if I redeem 5k points, I will get around 1750/- bucks only. Not an attractive option.

Billing – My billing date is 18th of every month. bank says due date is not fixed. It’s usually around 17th of next month but +/- 3 days. So clsoe to 30 days only. No grace period. I dont know how grace period comes into picture for me here.

Personal Loan – I just finished payment of a personal loan of 3 years. Not happy taking another personal loan(if they give me one, that is). I have contacted StanC which is my salary account for a personal loan. They need to get back to me. Hopefully this should turn out in my favour.

I wish I had some well off friends from whom I could borrow 1.35 lakhs and may be pay him 5k every month for 2 years. It would be have been the best case by far. Anyways.. khayali pulao!!

So Manish.. any pointers how I can handle this? No grace period, only 30 days payment cycle.. this seems not the norm.

PriyaHudson
PriyaHudson
8 years ago

Hi,

Saw the poll on this page regarding ‘spouse’s level of understanding and interest in personal finance’. Just curious.. Is this a page exclusively for men? Or, was it automatically assumed that the spouse with comparatively lesser level of understanding on finance will always be a ‘she’?

Thanks,
Priya.

Anuj
Anuj
8 years ago

Hi Manish,

Last year by mistake I took a credit card with an annual fees of 500. what would happen if i dont pay this fees ? would this mess up by credit score.

SouvikDatta
SouvikDatta
8 years ago

I am using ICICI Platinum card since Feb, 2015. Recently, made a transaction on trendkart. Due to inability to provide service, the merchant was forced to reverse the payment to my credit card a/c. But, by that time the bill was already generated and the bank asks me to pay the entire amount, vouching to adjust it in the next billing cycle.
Although, the reversal was well within the grace period (interest-free) period; still the bank wants me to pay up. Do you think its right on the part of the Bank? Is there a RBI guideline regarding this?

hi Ravindra kumar
hi Ravindra kumar
9 years ago

Hi Manish,
Actually last month my cc bill comes 20k and minimum due was 2,800,.how much need to pay if I paid around 10k than what will happen to next month cc bill. This can use emi it is possible.

Praween
Praween
9 years ago

Hi Manish!

Yesterday I paid the bill of restaurant thro’ my SBI credit card. I also signed the receipt generated.
Later when I checked my credit statement in the net, I was shocked to find that the money has been deducted twice. My card is Chip type, hence no swiping is necessary instead it is only to be inserted in the machine.
Please tell me what to do??

vijay
vijay
9 years ago

Hi i am withdrawing a salary or Rs 25000 but no deductions it is an package and i am working in HUL but payslip is coming frm KM Divakar (Chartered Accountant) how can i get the Credit Card or Personal loan.

Amaresh Nabar
Amaresh Nabar
10 years ago

Hi Manish, I use cash or salary A/C debit card to make purchases. My buying behavior and travelling habits are limited. Does one really need to have a credit card? also explain me auto debit and ECS?

Swarnab Ghosh
Swarnab Ghosh
10 years ago

Hi,

I have 2 credit cards – HDFC Platinum Plus (which was Value Plus earlier and the bank upgraded it, have been using this for 7 years now), and StanChart Titanium card. I use the HDFC one frequently, and have never defaulted even once.

I would say that credit cards can be a boon if you are not greedy with them. I started with a limit of 10,000 ONLY, and today bank has increased it to 4 lakhs. I bought my TV, some jewellery for my wife, did all my shopping with the card. The EMI option on credit card is very convenient. Recently I opted for the cash-on-call offer on my card to buy a pre-owned car. The loan was much cheaper than any auto loan.

So my experience has been very pleasant indeed. But I know a lot of people who have gone overboard with their card and lost their financial stability. It all depends upon how responsible you are. It’s great power, and calls for great responsibility!

Swarnab
Swarnab
Reply to  Jagoinvestor
10 years ago

Hi,

The interest rate charged was 11.88% reducing rate of interest. The used car loan offered in the market is slightly higher than this. Plus there was no processing fee, documentation, and the loan was processed in the same day I opted for it.

Hope this helps!

Binoy
Binoy
10 years ago

Thanks for the great post.
I am not a credit card user. I want a credit card now. I will probabily use the card only for EMI purchases from the shoping sites like e-bay, flipkart, amazon etc.
My salary account is in HDFC bank. I have a savings account in SBI (which is in Kerala). I have been working in Chennai for 2 years and salary account (HDFC account) is in Chennai. Could you please suggest me a card with no anual fee?

Bala
Bala
11 years ago

Manish,

You tips on effective usage of credit card are very useful and easily doable.

Iam caught in a situation and require your guidence. I reached my credit limit of 90k, 2 yrs ago and continue to pay Rs.5k every month judiciously. I know i can escape this by taking per.loan, but i already have one and manging this.

I do not have 2 credit cards, when i checked with the bank….if i could do a settlement…they said….you need to be a defaulter to seek settlement…..

How do i get away from this…..need your expert suggestion..

Regards,

Bala

Bala
Bala
Reply to  Jagoinvestor
11 years ago

Thanks Manish, Is this solution available from HDFC?

Rohit Taneja
Rohit Taneja
11 years ago

Hi i m working in a MNC and i have a HDFC GOLD Credit Card of 30,000 limit and i have also applied for another credit card of ICICI..Can i transfer balance from ICICI credit card to HDFC credit card at 0% interest and is there any annual fee charge for it..??

Madhu
Madhu
11 years ago

Hi,
i have axis credit card, first time user..if we withdraw cash from ATM(10,000) how much amount will be paid after 5 days?even though its not advisable to withdraw..if i was in emergency..

can you please tell me the how they will calculate????

cash withdraw fees:2.5% of the cash amount.

Raj
Raj
11 years ago

Hi all,
I am a regular reader of this post and quite frankly appreciate what you guys are doing here.
I am 24 (work for an MNC) and just got a credit card(HDFC Platinum Plus) which is a life time free card.
Can you tell me more about the hidden processing fees that the company charges?
Ex: one of my friend swiped his HDFC card at an AXIS EDC machine(credit card swiping) machines and was charged some processing fees for it.

can you tell me more about such situations which i need to take care as i am first timer.

Appreciate your help.

Piyush Balasaria
Piyush Balasaria
13 years ago

I would recommend all using credit cards to get a credit cards which has the most options for repayment. This comes in real handy when you do change your banker due to varied reasons like dissatisfaction, Company salary accs moving to a competition bank etc. Ofcourse nowadays ECS or Auto Debit Options are available with most banks but if you are one of those who like to have the power to pay your credit card bill yourselves at your descretion (Early or Late) this will come in handy.

The best one available in the lot is SBI Credit Card. It has more than 15 payment options available. Best one is of course whether you hold an sbi account or not you can make payment through their site http://www.sbicard.com using your other net banking account. Even if you are not net savvy just walk into any nearby sbi branch and make payment in cash without a single penny bieng charged. Of -course if you do have an SBI Account you can use their online banking site to make your credit card bill payment or if you aint net savvy just walk into any nearby SBI ATM & make credit card payment using your debit card.

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13 years ago

[…] How to manage or to handle credit cards or charge cards , what are the or do you know the common or … Credit cards or Charge cards are becoming or have become increasingly or progressively common or typical in or within India or Indian, and while or even though they come with or they have a lot of or lots of convenience or comfort ; the high or our prime interest rates or rates of interest and other or along with other charges or costs mean that or imply that you have to be or you need to be careful or cautious how you or the way you use them or rely on them . In this post or In this article, we look or we glance at or from 5 or Five tips on or tips about wise or smart credit card or charge card usage or utilization, and how or and just how following or subsequent them or all of them can save you or can help you save from a or from the whole lot or good deal of or associated with financial or monetary heartache or misery . These or These types of 5 or Five tips or ideas are very or are extremely logical or reasonable tips or ideas which or that a person or an individual should or ought to understand or comprehend by or through them selves or themselves , we have to or we must understand that or realize that the or the actual free or totally free credit or credit score we get or we obtain from or through credit cards or charge cards is not really or isn’t free or totally free , its or it’s actually or really a business or a company for or with regard to Credit card companies or Credit card issuers and hence or and therefore somewhere or someplace in the or within the whole or entire process or procedure they have a or there is a way to or method to make money or earn money . […]

vinay kukreti
vinay kukreti
13 years ago

Dear Manish,
I am planning to take a credit card.My objective is only to use it on emergency condition,rather I am sure chanses of using it 1-2 times in a year only for online bookings.
Kindly guide me the economical credit card with convenience.
I have HDFC and SBI saving accounts.

Regards

Jayaprakash Kanreddy
Jayaprakash Kanreddy
13 years ago

Another Tip: My personal experience though.

If you are planning to have two cards then keep one card limit very low and another card limit bit high. Use low limit card for bit unsafe transactions such as online payments (if you feel that site may not be safe but you have to make payment), hotel bill payments where your card will be with waiter till payment is done. Use high limit card for safer transactions. I never faced any bad situation such as mentioned above but this is precautionary measure I took.

I have two cards, one with limit of 25k and another with 100k. 25k card limit bank calls me every month to increase the limit, but I always so no to them.

Nitin Gupta
Nitin Gupta
Reply to  Jagoinvestor
13 years ago

Actually similar strategy is usefull for atm cards also. I have a good savings(my main acc) account, and a salary account, whenever i get salary i transfer it to my main acc and keep some money in salary acc for monthly exp. i keep atm card of salry acc only in my pocket, so at any time if somebody force me to use atm and give him money, i dont loose much.
another use of having two accounts is that all the sip, loan etc are associated with my main acc. so whenever i change job and salary acc, i dont need to update acc number in sip and loan.

JayaprakashReddy
JayaprakashReddy
Reply to  Nitin Gupta
13 years ago

I agree Nitin, I’m following the same with my accounts.

Sunny
Sunny
13 years ago

Last month my ICICI credit card bill was 17000. I paid Rs 10000 on time and Rs 7000 was outstanding. This month i did some purchase worth Rs 30000. Now when i got my bill i have been charged interest on Rs 30000 (Last month 7000 plus this month 30000). The bank guys told this is the policy. Can you please help me understand this? Is this the rule all banks follow? I find this very ridiculous.

Ajay
Ajay
Reply to  Sunny
13 years ago

@Sunny, With the ICICI CC statement you receive you will find “How to read the statement” and how does the bank calculate the penalty and interest. They have even explained with an example. Did you get a chance to go through that ?