Credit cards are handy and convenient while shopping or travelling no doubt, but overuse can also land you in trouble. Choosing the wrong kind of credit/debit card or too many, defaulting on the payment or exceeding the limit are common mistakes that one can avoid. Most banks today offer special credit/debit cards for women, with unique benefits. But before you sign up for one, it is advisable to get to know the basics of your credit/debit card.
Compare & Choose
When it comes to choosing your credit card, don’t get swayed by glossy ads or telemarketing calls. Features like initial fees, annual charges and interest rates differ from card to card, and these can be cut down substantially if you choose your card carefully. Attractive tags like ‘no annual charge’, ‘low rates’ etc could turn out to be just introductory offers – so do your homework.
Don’t Have Too Many Credit Cards
Besides being an invitation to overspend, a bunch of platinum and gold cards are a liability – and not a status symbol! Many cards also mean many bills and chances are, you could miss a payment without even being aware of it!
Time is Money – Pay Your Bills On Time
Your credit card comes with exorbitant interest rates (about 2% to 4% p.a). So when you default on even a small amount and carry forward your balance, you will have to:
- Pay exorbitant interest rates
- Lose the benefit of the interest-free period on all outstanding & future purchases
- Be liable to pay 12.36% service tax on the interest amount, which increases your overall interest cost from 27% to 54%.
So never ignore a credit card bill. Pay your balance in full every month on time, as late fees are as high as 30-40% of the outstanding amount. If you pay late, your payments begin to fall behind. You are termed a ‘defaulter’ if you don’t pay your bills for two months consecutively. The company can block your further transactions and can also initiate legal action against you based on your income, outstanding amount and your bill payment record.
Do Not Cross the Credit Card Limit
If you spend more than the credit card limit, the credit card company may not block your transactions, but you will end up paying huge interest rates on crossing the credit limit. Interest rates as high as 5% are charged on the amount outside the credit limit. Normal interest rates on credit card are between 2% and 4%.
Credit Cards are NOT for Withdrawing Money
Use credit card to withdraw cash only in emergencies. You have to pay cash advance fee at the rate of 2 to 2.5% besides the regular interest rate of 3%. If you are withdrawing money using credit card from some other bank’s ATM, then the cash advance fee will be much more than usual. With this, your free credit period also ends and the interest meter starts from day one.
Review Your Monthly Statement
Don’t throw away your receipts until you compare them to your statement. Review your monthly statement for accuracy.
The best thing about debit cards is that you cannot spend more than what is in your account. Thus it comes handy when you are afraid of overspending and can also be used to make payments and withdraw money from the ATM. However, there are a few things that you need to be aware of while using a debit card.
Watch-out for Service Charges
Debit cards come with a list of service charges that are usually detailed on the application form. Read the fine print carefully and look for hidden charges. Find out what the service charges and corresponding benefits are and choose wisely.
Get into Details
Some banks charge a nominal fee when you use your debit card to withdraw money from an ATM that is not affiliated to your bank. In some cases, this fee is waived for ‘priority’ customers. Sometimes, when you use an ATM that belongs to a state or government bank instead of a private bank, then the charges on your card will be lower.
So ask your bank to provide you with a list of affiliated ATMs and another list on the charges when you use an ATM that is not affiliated to your bank.
For working women, the corporate salary account not only doubles up as a debit card but it also allows you to maintain zero balance without any additional charges. But, just because your corporate account allows you to have a zero balance, try and refrain from emptying your account. Remember that it is always safer for you to have money in your account as a saving to fall back on when you really need the money.
However, this holds well only with your salary account. You will have to maintain a minimum balance, if you have a normal savings account or any other account.
Withdraw Money Only When You Need It
The important thing to remember about your debit card is to stick to your budget always. Just because there is money in your account, does not mean that it has to be spent. Think before you swipe your card, and manage your money carefully.