case studies

I also asked D, why she didn’t own a credit card. Her response:

I don’t believe in the mechanism of credit — it’s not my money to begin with. By credit, I include credit cards, loans, overdrafts etc. — any money that’s not mine. I’m also not aware of the procedures to repay the amount. I want to keep my life simple and stress-free. So I don’t own a credit card.

That evening, one look at the check I was depositing at the ATM as payment for my credit card usage, sent D’s resolution one notch higher.

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I was curious to know why a friend of mine didn’t own a credit card — especially in this day and age. My friend’s response:

Haasige iddashtu kaalu chaachu (idiom for: I don’t want to spend money that’s not mine to begin with). Add to that the hassles of remembering payment due dates, amounts, etc. Throw in the risk of physically losing/misplacing the credit card (I don’t even want to talk about the virtual aspect). It’s very easy to fall into a strangling spiral of spending money that’s not yours. I’ve seen people turn into compulsive spenders just to recover the annual fee and to utilize offers; seen people shift to another bank that clears your existing credit and gives you even more (read: balance transfers); seen people exhaust the limit on one card and simply move on to the next one in their wallet. They aren’t a happy bunch today. When you can keep things simple — and yourself happy — with your hard-earned cash, why would you want to get into the mess of credit cards?

I do confess that I have been attracted to cash-back and point-redemption offers, but one look at the fine print and…I know that it’s not for me. Of course, there are certain drawbacks to not having a credit card; but when you own your choices you also own their consequences.

What do you think?

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A friend and I were discussing about the New Pension Scheme when my friend commented,

It’s too nascent. The risk is very high. They don’t even mention the interest upfront. Based on your selection and market trends, the sum accumulates. Then there is a commission involved. I wonder what’s the idea behind charging a commission. It’s sad. It’s like gifting someone expensive wine with the price tag on and then asking for a sip back. Not even asking. It’s grabbing.

If you can analyze a financial product this much, you really are well set for a financially healthy life. Because, you know what to avoid.

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Following my post on failed ATM transactions, a reader wrote in with his story.

On October 15, 2008, I tried to withdraw Rs 4,000 using my Citibank debit card at an HSBC ATM. The peculiar thing about HSBC ATMs is that the transaction slip is printed before the cash is dispensed. Unfortunately, there was a power failure after the transaction slip was generated but before the cash could be dispensed. Even my debit card was swallowed by the ATM. I lodged a complaint with Citibank who issued a new debit card and gave a temporary credit of Rs 4,000 (on October 22, 2008). Having received the temporary credit, I discarded the transaction slip.

On December 31, 2008, the temporary credit was reversed, and upon inquiry, was given the reason that HSBC had presented this as a valid transaction. I lodged a complaint again; Citibank re-investigated and upheld the reversal. I have been fighting with Citibank but to no avail. Citibank says that the best they can do is to issue a letter in order that I can pursue the case with HSBC. What should I do? I’m not sure if it’s worth going to consumer court for Rs 4,000.

I realized that other readers of this blog might have faced a similar situation and hence asked this reader for permission to post his question. What do you suggest that this reader do in order to resolve this problem?

My advise was to lodge a complaint with the nearest banking ombudsman.

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Read this article and this article.

I’ve been crying myself hoarse on why you should opt for independent health coverage even if your employer currently provides one.

I hope you’ve already taken this all important step.

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A reader recently wrote:

I have a friend who needs some guidance on a problem she’s facing with her Barclays Credit Card. Barclays is forcing her to avail a membership called Barclays Priority Circle. They call her several times a day asking her to pay around Rs 9,000 as membership fee and late payment charges.

My friend got her Barclays Credit Card sometime in April/May of this year on her own interest. One fine day, a couple of months later, my friend got a call from Barclays Priority Circle. One guy from Barclays Priority Circle was forcing her to become a Priority Circle member. He said that its free for Barclays Credit Card holders. He called several times and when my friend found that there is no pain in becoming a free member, she accepted the membership. In the next month’s statement they put this membership fee of Rs 6,000 and some surplus tax. After that the whole drama started.

My friend tried to discontinue the credit card, but Barclays claims that they have the call record of the dialogue between my friend and the Barclays official. They also claim that as per their policy she has no option other than to accept the card and pay the fee. She is helpless and feels trapped.

What should she do now?

Since I was held up with other tasks, I couldn’t immediately respond to this query. The reader’s friend wrote back saying:

I have been giving several rounds of phone calls to Customer Care, Barclays Priority Circle, and their Supervisors. I also lodged complaints with Barclays services department.

Finally, I got the phone number of the card division’s head and got a chance to speak to him. I also asked Barclays to send me the tape which had this particular conversation record. But they refused. It was immediately clear that no such membership fee was ever discussed over phone. After several rounds of calls, Barclays verified that the call record which I had with Barclays Priority Circle doesn’t say that I had nodded on the membership fee part. So they are going to reverse the membership fee and all other charges.

Do learn from such situations and be safe.

Moral of the story:

When a financial institution offers you “exclusive,” “privilege,” “priority,” “premium,” “premier,” or “another-similar-word,” access to some [usually useless] service of theirs, run away as fast — and as far away — as you can.

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A reader asks,

I want to contribute for my sister’s marriage which we’ve planned for in two years’ time. Could you suggest the best possible short-term investment plan for this purpose?

My suggestion:

Park your money in bank fixed deposits. They’re safe, offer decent returns, are liquid if planned for correctly, and more importantly, match the purpose and time frame of the planned goal.

What do you think? Would you suggest a different course of action?

Note: I did think of Fixed Maturity Plans (FMPs), but given the recent bad press on mismanagement of such plans by fund houses, decided against them. Plus, understanding FMPs and their investment methodology demands a certain level of financial literacy.

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The past one-and-half months have been traumatic as my mother’s health has steadily deteriorated into a critical condition. We’ve given her the best medical care possible — probably that’s what has kept her going this far. I couldn’t have afforded this medical care if it were not for three things:

  1. Clearing my debts and keeping out of debt,
  2. Building a substantial emergency fund, and
  3. Having independent health insurance.

Just a couple of years ago, I had a lot of debt to be repaid, no emergency fund, and no independent health insurance for my mother. I’m not sure what I’d have done — without going deeper into debt — if the present emergency had happened back then. In fact, I don’t even want to think about it. All the personal finance reading and research that I have done and the financial plans that I have executed over the past couple of years have proved their worth — many times over — today. Just imagine if one has to bear both psychological and financial traumas in such a situation.

If you haven’t yet got your financial house in order, there’s no better time to start than today. Believe me. It’s never too late to be prepared. I’d be glad to share my experiences and help.

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