22 January, 2008

Credit Card WOW's!

Is a credit card a woe or a wow? Read on and be surprised by the power of credit cards!

Personally, I own credit cards and have cultivated innovative ways of utilizing them based on my experiences. Below is my list of tips to maximize the benefits of your credit card(s) in India:

1) Repayment (Don’t pay interest):

  • Pay your FULL credit card bill each month. This way, you can completely avoid the interest charges (as high as 36% per year!). Yes, if you pay the entire amount billed in your credit card statement, you do not pay any interest to the company.
  • As a credit card holder, your primary responsibility is to maintain manageable debt and interest rates. The interest rate does not reduce to zero, until you repay the full amount at some point.
  • Incase you are unable to pay the full amount due to financial constraints, refer points 2 and 3 below.

2) Balance transfer (Pay in parts, keep it dormant):

  • You can transfer the balance from one credit card to another credit card (of yours, not others) at nominal interest rates (about 0% to 3% up to 6 months). This is a much better option to repay high debt.
  • Once you transfer the balance to your 2nd credit card, do not use it (keep it dormant!) until you clear off the balance (in convenient part payments). This would avoid high interest rates as described in point 1.
  • My advice is to keep at least 2 credit cards so that you can do this effectively. Think of it as a short-term low-interest unsecured loan!

3) EMI (Pay monthly, keep it dormant):

  • If you purchase an expensive item (say digital camera, cell phone, etc.), go for the EMI option. You may choose this option while swiping the card or through customer care. Some companies offer 0% EMI schemes for fresh purchases.
  • Treat EMI similar to Balance transfer and don’t use the card till you clear off all EMI payment.

4) Reward points (Earn and use):

  • Most cards earn reward points for each purchase. Keep track and avail these points against an array of gifts.
  • A simple advice is to pay all your utility bills using credit card and pay the full credit card bill each month. This way, you can analyze your spends, pay 0% interest and still earn reward points!

5) Charges (Be aware):

  • Opt for credit cards with features such “free-for-life” option, no annual / joining fees, no non-usage fees, etc.
  • Do not choose the life-insurance option with the card unless you want to pay the premium. Look, understand and fill / sign the application forms.
  • Most companies offer a one-time waiver of late payment fees. Call the customer care and avail this option when needed. Pay your dues before the due date.

6) Special offers (Don’t be tempted):

  • Special offers are announced during festival and occasions. Look before you leap here since such offers may carry hidden charges.

7) Convenience (Click and forget):

  • A credit card allows you to pay most of your bills (power, water, mobile, landline, life-insurance, vehicle-insurance, etc.) from the convenience of your home or office.

8) Security (Better safe than sorry):

  • Minimize credit card hacks by always using them on trusted computers (Cyber cafĂ© is a big NO-NO!), on SSL enabled websites, etc.
  • Incase of any discrepancy, block the credit card and complain to the customer care immediately. You might have to send a written complaint in some cases.
  • Maintain complex passwords and uncommon PIN combinations. Change them frequently, if possible.
  • Get online access and monitor your card usage frequently.

9) Customer care (Call 24*7):

  • It’s a pain to get through to the customer care sometimes. But, we need to be patient and utilize the available services well.
  • You could call at off-peak hours to avoid long wait-times or use email.

Hope the above tips change your opinion about credit cards and influence you into trying them. You may still choose to avoid credit cards due to their inherent misuse (by self or others), but please don’t view me as a blog-marketer of credit cards :).

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