Use Debit cards and not credit cards

Outstanding Amount on card costs a ‘hell’ and all persons are squeezed of their bloods using credit cards. The writer had a bitter experience of clearing all out standing dues and had the shock of life to receive in the subsequent month another bill showing interest charges. Their statements incorporate charges like ‘late’, ‘over limit’ and several other fictitious charges despite making payments on time. If you notice and take up they may reverse but suddenly after a month or so again and again such things crop up. The writer has documentary evidence against ‘Standard Chartered’ credit cards. This paragraph is incorporated here as readers of the article are alerted before taking up any credit card.

This is an important enough reason for credit card holders to carefully go through the terms and conditions before choosing to part pay their bills. Even if a card user pays a major chunk of the billed amount, interest is levied on not just on the outstanding balance, but on all subsequent transactions. Although savvy cardholders are aware about this common banking practice of revolving credit, many remain clueless.

A senior banker draws attention to the system with an example: Suppose you pay 90% of the billed amount and only 10% is left. The next month (in the following billing cycle), you have to pay interest from the date of the first purchase. So effectively, the consumer loses out on the interests free credit period. If you part pay an industry expert emphasizes, not only do you pay interests on the outstanding amount, you also lose interest free credit facility. Your meter starts as soon as you your card thereafter (incidentally, in case of cash withdrawals, interest charges are levied from the date of transaction).

Pre-determined charges, says a banking ombudsman official are mentioned in the booklet which comes along with the card. It covers all terms and conditions, but few bother to read it. These charges, thus, cannot be challenged at the banking ombudsman’s level, since the cardholder has accepted the terms by duly signing up for the card.

Clear listing of charges has been mandated by the RBI’s 2007 master circular on credit card operations of banks. It states Card issuers should quote annualized percentage rate (APR) on card products (separately for retail purchase and for cash advance, if different). The method of calculation of APR should be given with a couple of examples for better comprehension. The manner in which the outstanding unpaid amount will be included for calculation of interest should also e specifically shown with prominence in all monthly statements. These aspects may be shown in the welcome kit in addition to being shown in the monthly statement.

The fair practice code of the Indian Banks Association, adopted by its member banks, too promises. We will send a service guide/member booklet giving detailed terms and conditions, interest and charges applicable and other relevant information with respect to usage of your credit card along with your first credit card. Consumers can also access such information on card issuing banks individual websites.

Now, since the interest rate on a credit card is high, bankers recommend using it only as a short term credit facility. They advise consumers who are likely to face a repayment crunch to opt for an EMI (equated monthly installment) option in the first place. Here, they say, the interest rate too works out to 18-24%, which is a lot lower than the interest you pay on your credit card’s outstanding balance.

Consumers must, however, note that the EMI option is normally valid only for particular transactions and not the outstanding balance. If you are to able to pay your card bills take a personal loan, a banker recommends. Never ever use credit cards. Cut your cloth according to the coat meaning use debit card and spend only when you have money or plan in advance any major purchases to pay from own resources.

Corporate companies are compelled to give to their credit cards to their key employees for spending on company’s work. This is to have transparency in accounting and corporate companies can afford to pay or fight a legal battle for any frauds on card statements.

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