MORNING 11.30, Anju’s cell phone rings, a call from ‘XYZ’ bank offering her a new scheme for Silver credit card – free. She is thrilled by the offer and immediately accepts it.
After a month, call from ‘ABC’ bank, with another exciting offer for issuing Gold credit card. Anju accepts it quickly, as if this is the scheme she has been waiting for.
And it goes on now. Anju has seven credit cards. And she is proud to carry them.
Sunday morning, holiday from work. She goes out for shopping, finds an exciting offer to buy a cell phone with credit card payment. Moving around in the shopping mall, she finds a mega sale – Monsoon Dhamaka, on clothes. How can she wait to think of her bank balance, when such a huge sale is on? She buys in bulk. Next door is a jewellery shop; she remembers reading a newspaper advertisement offering a special discount for credit card holders of ‘XYZ’ bank. Anju feels…its just right thing to go for, after all she has worked all month, she grabs the offer.
One day, she gets her credit card bills, and is shocked to see she is in huge debt. Her credit card debt is Rs. 1,50,000 and the EMI has risen to Rs. 20,000 p.m. Her monthly EMI and personal expenses has exceeded her monthly income. Her salary of Rs. 25,000 is not enough to pay for those bills and EMIS after keeping money aside for her daily expenses. And saving for the future turns into a far off dream.
Is it alarming? This is a wake up call for all those who feel proud to be an Anju.
There are two major reasons for falling in the debt trap; one is impulse and unplanned buying, which only you can control. And, the other is, failing to understand how credit card billing works.
It may take years to understand how credit card billing works and how can it impact you. Understand it now and curtail your credit card bills.
What do you need to know for credit card billing?
Your credit card comes with a credit limit, there will be ‘over the limit’ penalty charges. If your bills are always above the credit limit, increase your credit card limit to avoid penalty charges.
Find out which is the billing date and billing cycle. Your interest will be due from the day interest-free credit period expires.
Late payment fees: If you make late payments, you end up paying late payment charges month on month apart from interest that you pay on credit card dues. Make you sure you pay before time.
Never use credit card for cash withdrawals as your interest starts from day one. Rather apply for credit card loan only if it is necessary.
Service tax: It is applicable on all fees, interest and charges @10.3 per cent as per current law.
Transaction fees: There is fixed as well as variable transaction fees on various purchases such as buying rail tickets, payment to doctors, shopping.
So if you buy a cell phone worth Rs.10,000 and you pay late by one month, following will be your charges: You will end up paying approx. Rs.1300 extra on the same by way of interest, transaction fees, late payment charges and service tax.
Study the schedule of charges thoroughly and understand its implication. Never hesitate to ask your banker for any doubts or call up toll-free numbers at bank and find out what all charges you are paying, directly or indirectly.
It’s your right and you learn to exercise it.
The writer is an educationalist, writer and trainer. She conducts Money Workshops for youngsters. She can be contacted on . Write in your feedback.