credit cards

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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Because, Indian banks are now free to charge an annual interest rate of up to 49% from credit card customers for late payment.

Read the complete story here.

It’s not a great idea to carry your credit-limit-beyond-what-I-can-pay (most often …) credit card in your wallet especially in these lean times. You might be the most punctual person in paying off your credit card balances each month, but all it takes is one delayed payment to push you into the drowning spiral of debt. Leave your credit card at home, spend cash, and fully enjoy your life.

49%!

WTF mate?

What do you think?

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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I have often heard the argument that the credit limit on a credit card serves the purpose of an emergency fund. This strategy by itself is both myopic and dangerous. However, what can make this strategy both farsighted and safe is if you have a real emergency fund with real cash in a savings account backing up your credit card. The credit card gives you the immediacy of funds in an emergency but immediately pushes you into credit card debt which you can now quickly get rid of by using the real cash balance in the savings account. The best of all worlds in my opinion.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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I’m a BIG fan of Suze Orman simply because she gives practical advice on personal finance. I try and catch her show every Sunday on CNBC (here’s the TV schedule). I happened to read this recent interview with Suze Orman where she answers questions posed by a group of personal finance bloggers. Though some of the questions are specific to the situation in the United States, her answers/advice are generic enough to be of value to a wider audience. I urge you to read it in depth and identify your personal takeaways.

I particularly like this advice — having been down this road myself.

My advice to people who were once in credit card debt and now they’ve gotten themselves out of credit card debt is I would literally cut up all of my credit cards. I would not be carrying them…

You won’t find my credit card in my wallet. Therefore, I can’t lose my credit card and I can’t charge a rupee on it. Stress free and honestly liberating. You’ve got to try it.

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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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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I have an HDFC Bank Credit Card — one that I haven’t used since I received it over an year ago. I therefore decided to cancel it. A week back, I dropped a request-for-cancellation letter at an HDFC ATM near my house. Today morning, I called to check the status of my request. A few points from my conversation with customer care (my thoughts during the call within [ ]):

  • We have received the request letter. [Great!]
  • The card has been temporarily blocked. [Ok. Getting nervous.]
  • We’re working on canceling it permanently. [?]
  • But, why are you canceling the card? Blah blah…lifetime free…blah… [CANCEL]
  • We will upgrade the card to a Titanium Card. [WTF?]

Again, WTF mate?

I haven’t transacted a single time on this “standard” credit card and HDFC Bank wants to upgrade it to a Titanium Card (higher credit limits, extra dangerous to carry around, unwanted misery)! That aside, does HDFC Bank even care whether I have the capacity to repay? Isn’t this exactly what has happened elsewhere in the world? So, who was that who said that Indian banks are safe and sound?

What do you think?

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Reader Shankar asks,

Is there any Master Circular issued by the Reserve Bank of India on Credit Cards issued by Indian Banks?

There certainly is:

There’s some pretty useful information in these documents. Again, take some time off this weekend and assimilate its contents. You’ll be glad that you did.

Awareness Fridays is my new initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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When you see a financial offer that sounds too good to be true, you should always read the fine print.

For example, a recent issue of Outlook Money carried an ad from Kotak Mahindra Bank that touts a 48-day interest free period on cash withdrawals done using the Kotak Fortune Gold [Credit] Card in lieu for a flat-fee of Rs 199. Sounds too good to be true right? I mean…no interest for 48-days and just Rs 199…wow!

But, on the 49th day, when you receive your credit card bill, you discover that

  1. There is a flat-fee of Rs 199 for every Rs 10,000 withdrawn.
  2. There is a service tax @ 12.36% on this flat-fee.

So, you’re being charged approximately Rs 223.60 for every Rs 10,000 that you withdraw! And where exactly were these details provided? In the fine print (printed in microscopic fonts)! How often do you stop to read the fine print?

Such practices are what I hope to expose through The Hidden Rupee series.

On a different note, this credit card is aptly named — just that you are not the one who’s making the fortune. How can you? Especially when this credit card encourages you to use it for

  • Personal emergencies, and
  • Business emergencies.

If that’s what you actually use your credit card for, you seriously need to rethink your finances.

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In describing my credit card usage policy, I said,

I should look at every other option before opting to purchase with a credit card.

For reasons that still remain a mystery to me, I recently used my credit card to pay for goods and services when there were a whole set of other options readily available to me. I did so twice.

To begin with, I used my credit card to pay for generating my tax returns electronically. How dumb is that? Especially, when the income tax website offers the tax return preparation software as a free download. I could have also sat down with a pen in hand and filled up the forms manually (like I have done in the past five years).

Second, I used my credit card to purchase cinema tickets online. I have always purchased cinema tickets by paying cash at the booking counter. Worse, we couldn’t catch the movie and all the tickets went waste! Worst, each ticket booked online attracts a service charge. Hard earned money racing down the drain.

I still feel lousy for unnecessarily using my credit card. It’s, however, a good lesson learned. What strikes me as dangerous though, is the lure of credit cards — how easy it is to fall into debt from the comfort of your chair.

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Source: RBI Notification.

Banks have been advised that unsolicited credit cards should not be issued and that in case an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed.

In addition, the person in whose name the card is issued can also approach the Banking Ombudsman who would determine the amount of compensation payable by the bank to the recipient of the unsolicited credit card as per the provisions of the Banking Ombudsman Scheme, 2006 i.e for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him.

I’m a bit concerned by the wordings, “in case an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same.” So, is it OK for a bank to issue an unsolicited but not yet activated credit card? I recollect having received an unsolicited credit card with the condition that the credit card would be activated on first use.

What do you think?

The notification further says,

There have been instances where unsolicited credit cards issued have been misused before reaching the person in whose name the card is issued. It is clarified that any loss arising out of misuse of such unsolicited cards will be the responsibility of the card issuing bank only and the person in whose name the card has been issued cannot be held responsible for the same.

Easy to say. Difficult to prove.

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What’s Your Credit Card Usage Policy?

by Vinaya HS on June 16, 2008

in Finance

In my financial independence checklist, I mentioned as the first point:

I should not have any credit card debt.

While this is true today, such was not always the case. A long time ago, I had an outstanding debt in six-figures on an American Express credit card and no bank balance to pay it off. The youthful exuberance of having a well paying job straight out of college was the root cause. I bought stuff that I really did not need and worse, on credit.

To further worsen the situation, I took a supposedly “interest free” six-figure loan from my employer to pay the credit card debt. No one told me that the “free interest” component of the loan would appear as perquisite while computing my income tax. It was a BIG mess and one that took a lot of time to get out of. That was when I put in place my credit card usage policy.

My Credit Card Usage Policy

  • Have one credit card with no joining and annual fees and a low credit limit. I call this my Main Card.

  • Have one credit card with no joining and annual fees and a sufficient credit limit. I call this my Backup Card. Sufficient is a value that you will need to decide looking at your personal situation. In my case, it’s in the five-figures.

  • Do not carry either of the credit cards during your daily routine (includes to work, while shopping, going out with friends, and such). It’s true, I don’t carry a credit card in my wallet! I therefore “don’t have to worry” about future bills.

  • Look at every other option before opting to purchase with a credit card. I faced this situation recently when I had to purchase a Dell monitor and finally used my Main Card for the purchase.

  • If you really need to use a credit card to make a purchase, ensure that you already have adequate balance in your savings account and immediately pay off the card. When I bought the Dell, I paid the balance on the Main Card the very next day although the due date was a full billing cycle away. I don’t care for any “opportunity cost.”

That more or less has been my credit card policy since the meltdown. My first option is to pay with cash for any good or service. I’ve had a stress free experience on this front.

What’s your credit card usage policy? I’d love to know.

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The following is a true account of a close friend’s experience after losing a credit card:

How the credit card was lost?

My purse was stolen on 20th January 2008 at an IKEA store in Elizabeth, NJ. I lost my Driver’s License, an HSBC credit card, and all my Debit Cards. I contacted the police, filed a complaint, and drove back home.

How HSBC was informed about the loss of the credit card?

Reaching home, I immediately rang HSBC customer care and reported the loss of my credit card (within 3 hours of my card being stolen). I got to know that my HSBC credit card had already been used at multiple places in NY within this time and that these transactions were in the billing queue. The HSBC customer care executive asked me to fax a letter stating the loss of my credit card along with the police report.

Follow-up from HSBC.

I received an email from HSBC that said, “we wish to inform that under the terms and conditions of card membership (Lost or Stolen Card section of the cardholder agreement), the cardholder is liable for all charges incurred till the time loss of the card is reported to the bank.”

WTF mate? Whatever happened to that 24-hour window during which we could report a card loss and not be charged for any fraudulent transactions.

It seems there is a new policy in place since September, 2007. The new policy reads, “credit card companies will no longer bear any expenses resulting from the transactions (of stolen or lost cards) that have happened before the card is reported as lost.”

The 24-hour window was the single protection for credit card users and has now been taken away by all credit card companies operating in India. In fact, I did not know about this policy until I got to a situation where I was forced to read the credit card rules. Credit card companies have not even updated their customers regarding this policy change.

Were you aware of this rule? Did your credit card company intimate you about this rule?

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There are principally three ways by which you can pay for petrol at a gas station: Cash, Credit Card (plain or co-branded), or Pre-Paid Petro Card. There are advantages and disadvantages in each option, mainly depending on your spending or budgeting beliefs.

I always prefer paying in cash for all my expenses, except for airline tickets and web-hosting for which I have no option but to use a credit card. If it’s an expensive purchase, which in my books is above Rs 2000, I use my debit card – the plastic equivalent of cash – rather than having to carry bundles of currency in my pocket. I avoid using my credit card. Because when it comes to credit card debt, I have been there and done that. Veni. Vidi. Credit. I came (to the shop), I saw (the products), and I debted (using the credit cards). Although the 50-odd days of credit looks attractive – and many advise you to invest the saved cash elsewhere for 50 days – I believe it’s not worth the management headache.

The pre-paid petro card seems to be a good backup for an emergency. I think it’s a good idea to have such a card in your wallet, or even better in your vehicle, with a 1000 bucks worth of petrol loaded. It really could be a life-saver. The more I think about it, the more determined I am to get such a card once I am back in Bangalore. And forget the reward points. If you maintain cards for the reward points alone, you need to think hard.

The The Economic Times recently carried a well researched article on this topic. Excerpts below.

The use of credit cards is becoming as common as cash when it comes to tanking up the car. While plain vanilla credit cards can be used, one also has the option of using pre-paid petro cards and co-branded petro credit cards. Here’s a lowdown of the features, advantages, and disadvantages of such instruments.

Pre-paid cards

There are two pre-paid petro cards in the market: HP Smart 1 and BPCL Petro card. A pre-paid card has an electronic chip, which stores information about the amount (in rupees) of fuel that you have loaded in your card. Every time you transact on this card you earn some reward points. To apply for any of these petro cards one needs to fill an application form and pay a one-time joining fee of Rs 250. The card is received later by courier through a payment receipt which is issued by the retail outlet immediately. In case of the HP card, you can load the card with a minimum amount of Rs 250 and in multiples of Rs 50 thereafter. For a BPCL card, the minimum load amount is Rs 500 and subsequently you can load the amount in multiples of Rs 100. The cards get automatically debited according to the spends made.

How rewarding are pre-paid cards?

Club HP Smart 1 card provides 5% of the amount spent as rewards. The spend can be on anything, right from petrol/diesel fills to lubricants to car servicing to batteries, etc. All one needs to do is use the HP smart card to pay bills. The BPCL Petro card, on the other hand, provides you with reward points (called petro miles) for all purchases from any of Bharat Petroleum’s retail outlets in India. The reward points in BPCL’s case differ based on what products are purchased.

In case of HP Smart 1, you can encash the rewards accumulated for free fuel. In case of the BPCL Petro card, you can only redeem the petro miles for gifts. The petro miles can either be redeemed at BPCL outlets or through its website.

Co-branded credit cards

Apart from the pre-paid petro cards, you have the option to use a co-branded credit to pay for fuel. These cards do away with the surcharge you pay at fuel filling stations while using a vanilla debit/credit card. The surcharge works out to 2.75 % or Rs 10, whichever is more.

Co-branded credit cards like IOC-Citibank and HPCL-ICICI Bank are the only co-branded petro cards in the market. The IOC-Citibank card fetches one reward (turbo) point for every Rs 125 spent. If you purchase any other IndianOil product outside an IndianOil retail outlet you can earn two points. These accumulated points can be redeemed for free petrol or petro coupons. These coupons can be exchanged for free fuel/Servo lubricants at select IndianOil retail outlets.

In case of ICICI Bank-HPCL credit card, the reward points — Speed ‘o’ miles — can be redeemed for free fuel at HPCL petrol pumps or against gifts available in the ICICI rewards redemption catalogue. Other add on features include a 15% discount on P-UC. (pollution under control) check, labour charges on servicing and minor repairs at HPCL petrol pumps. You can also enjoy a 5% discount on MRF tyres, Exide batteries and MICO accessories.

Cash too can be rewarding

IOC has launched IOC Xtra reward programme, which benefits customers making cash purchases. This card is issued almost instantly and you need not pre-load any money. Every time you make cash purchases using this card at IndianOil petrol/diesel outlets, reward points are added to your card. These points can be redeemed for fuel/lubes and other items. It also offers accident insurance cover worth Rs 1 lakh for the first year.

Pre-paid vs credit card: Take your pick

A credit/debit card may charge an annual fee. The pre-paid petro cards, on the other hand, charge a one-time membership fee, which is non-refundable. Another catch is the waiver of the surcharge. You should know that for HPCL-ICICI Bank credit card, there is an extra charge of Rs 2 for all fuel purchase transactions that is less than Rs 400 made at HPCL outlets. Moreover, in case of a pre-paid card there are no late payment penalties or interest charges unlike credit cards. But, in the case of a pre-paid card you pay the oil company in advance for future petrol spends while in the case of a credit card you can get up to 45 days to settle your petrol bills.

How do you weigh your options?

The cue is if you are loyal to a particular petrol brand, then you would benefit from possessing a pre-paid petro card or a credit card. You can use rewards points for free fuel or gifts. If you do not patronise a single petrol pump/brand or don’t feel like carrying too many cards, you always have the option of paying cash.

Let me know if you use a pre-paid petro card. I would love to hear your thoughts.

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