The Costs of Credit Card Payment

After the revelry comes the hangover. For those who habitually treat their plastic card as the ever-obedient Genie to every command, taking in the details of the monthly bill is like seeing Cutsie transform into a Frankenstein's monster instead.

To command and not be cowed, here is a primer to survive being ambushed.

Renewal: Check the time of the renewal of the card. Are you used to ignoring the credit card issuer’s flood of literature or the details of billing. Often, the card issuer or bank will slip in renewal fees and even an unsolicited upgrade of class of card (say, classic to premium that means higher annual fees) with a mild notice: If you don’t say `No’, its taken as a ‘Yes’.

Interest-free period on every bill: Not if you have roll over credit. You did take a card not just for convenience. The facility of being able to pay back in bits is very appealing, especially since the interest rates is, say, 2.5 to 3% a month. Did you ever sit down and do some sums to see why the outstanding amount is mounting like crazy? First, the 2.5% averages 30% a year. Next, the outstanding you acquire in the first month has to be cleared in subsequent bills before your fresh purchases can be paid for. Here is how it works. Assuming you have a bill of Rs. 100 in the first month and you settle Rs. 25. Your second bill has a fresh purchase amount of Rs100 and the previous outstanding of Rs. 75 plus interest. If you give Rs. 50 as part payment, the money goes toward clearing the previous outstanding and the current billing is taken as further outstanding. In other words, the second bill has no interest-free period.

Purchases on credit: In some shops or retail outlets, card payments means an extra payment added to the bill by an establishment that does not want to encourage plastic money.

Fuel on credit: Now that you would say is a real boon. Is it? Every time you fill the tank, the service charge that accompanies each transaction could be 2.5 percent. Small change that adds up to a fat sum in the total.

Billing period: Every cardholder gets the bill in regular monthly cycles. The billing period can be a double-edged sword. If you make a purchase close to the billing date you get shorter payback time and if you buy just after you get a monthly statement, the credit period can be extended to as much as 45 days. This is how. Suppose the first billing date is April 25, after which there is a pay-by-due-date of a fortnight later, around the May 9. A purchase on May 26 will be payable approximately around June 9 but a purchase on April 23 will be payable by May 9, that is a much shorter credit time.

Cash advance: The clock starts ticking straightaway on this facility. Usually, there are two sets of interest that are applied the moment the cash leaves the teller machine. First, there is a flat transaction fee. Second there is a rate of interest that is applied on a daily basis. Thus in the bill you end up with a dual interest. The cash advance payment is not included, usually, in the general bill. So either be circumspect or if you have to flirt with temptation than rein in the hook as fast as you can. Clubbing this outgo to a roll-over credit habit can be especially fatal.