Do you know these 5 smart tips for using credit cards?

Recently, a friend called me. She sounded a little upset.

For the very first time, she had missed paying up her last credit card bill. This was very unusual given that she is very particular about paying her bills on time. But such things do happen once in a while.

Her question – “Vipin, I have received the current credit card statement. It has a late payment fee as well as an interest charge. What do I do now?”

“Well, don’t worry!” I responded.

This is not the only case related to use of credit cards. I have come across several others – most as first hand experiences.

Here are some:

1. Your credit card gets swiped, you receive a confirmation SMS but the swipe machine declares a failed transaction
2. A wrong amount is swiped on your credit card – Rs. 4,500 instead of Rs. 450
3. You get an offer for a ‘payment holiday‘, which you quickly grab without realising the real cost

And I am not talking of any frauds here. Just simple issues that we could face as users of credit cards.

I would like to share with you 5 things that you must know about your credit cards. They will enable you to use them intelligently and safely.

#1 You can get the charges reversed

That is what I told my friend. If you are not a habitual late payer, the credit card issuers (mostly banks) are willing to reverse the charges. All you need to do is to call up the customer care and tell them that you genuinely missed out on making the payment and would like to get the late payment fee as well as the interest charges reversed.

In most cases, the bank would oblige. However, for the current statement you will have to pay up the entire amount including the late fees and charges. The reversal will reflect in your next bill statement.

For your information, as per latest RBI guidelines, you now get a 3-day grace period for paying your credit card bill. So, if your card statement has the payment due date saying Aug 31, you have time till Sept 3 to pay, without inviting any late fees or interest charges.

However, that should not be used as an excuse to NOT make your payment in time.

#2 You can dispute a wrong charge

Several times, specially at petrol pumps, it has happened that my card has been swiped; I have received a confirmation SMS but the transaction was declined on the machine. The merchant requests you for a new swipe. I reluctantly agreed the first time. They assured me that I will not see a duplicate charge. It was true. This ‘need to double-swipe’ has happened a few times now.

I also take assurance in the fact that I can always call up the credit card company or bank and tell them that there is a duplicate charge and dispute it. As per RBI guidelines, they are mandated to fully assist you in getting the amount back.

You might sometimes notice that your card statement shows a wrong or unauthorised charge. You don’t remember ever doing that transaction. In such a case, as soon as you discover it, you should report the unauthorised charge with the details to the issuer bank or credit card company.

#3 You will get lured by promotional schemes to spend

Credit card companies or banks use several promotional schemes to make you spend on your cards.

Extra rewards on weekend shopping; 

Spend a minimum amount and get a chance to win a Tablet;

The highest spender wins a foreign trip. 

Money back offers, waiver of interest charges or processing charges during festive seasons is the norm. While they make the stuff seem affordable with lower monthly payments, they may push you down the path of ‘death by debt‘.

Here is the bigger one. A few years ago, I opted for a ‘payment holiday scheme‘ on my card. As per the scheme, I was not supposed to pay any amount on my card for two months. I could shop during the payment holiday without paying a single rupee – no interest charges, no finance charges and no late fees. The entire outstanding amount was payable only when the payment holiday period was over. So, from Nov 2012 to Dec 2012, I did not pay the bank anything. The amount became due only in Jan 2013.

The participation was voluntary. One could opt to pay bills regularly every month. I opted in thinking that I stand to benefit big time. How? My finance mind got thinking in terms of the opportunity cost benefit- the extended period of interest free credit that I was getting. But I was horribly wrong. I could not translate it into practice. When the card statement arrived after 2 months, I was shell shocked. I had to pay over Rs. 1 lac – of course I had spend that amount. Now, I had to literally scramble around to arrange for the payment.

Guess what? If I had not paid up the full amount, I would be charged a hefty rate of interest on the entire outstanding amount.

#4 You should NOT take loans on your credit cards or withdraw cash

Credit card loans are some of the most expensive loans that you can ever think of. With interest rates starting from 18% going up to 50%+ per annum, these loans can really create a serious dent in your finances.

These rates are applicable when you revolve your credit, that is, you do not pay up the entire outstanding amount on your credit cards by the due date or you pay only the ‘minimum due‘ amount and carry forward the rest for payment in future, of course at a high rate of interest.

You can also withdraw cash from any ATM with your credit card, upto the specified limit. Remember: This withdrawal too is considered as credit or loan. There is usually a one time fee that is applicable on such withdrawals. It will show up as an outstanding in your credit card and if you do not pay up on time then you will end up paying the higher rates as mentioned above.

This could end up adversely affecting your credit history and scores.

#5 You should have your credit card info handy

The wallet of another friend of mine was stolen. And with it he also lost his credit card. He wanted to block it but he did not remember his card number or other details. Thankfully his card was registered with his bank account. So, he called up and got the card blocked immediately.

The lesson is that you should keep a copy of your credit card(s) info handy, either in your mobile as an image in a password-protected folder or as a photocopy. Store the card company’s contact numbers on your mobile, so that you can call them up whenever you need to.

The long and short of it – Summary

1. If you forget paying your credit card bill and see a late fee or interest charges, you can request your bank to reverse it. Of course, this will happen only once in a while.
2. If there are amounts on your card statement, that you never did, you should report to your card issuer immediately with the details. They will help you get the credit back.
3. If you are offered schemes such as  ‘payment holiday‘, do not touch them – even with a long stick, unless you are very very sure that you will make the payment in full. Not handled well, they can push you deep into a debt trap.
4. Do not withdraw cash using your credit card. Do not revolve your credit. It carries a very high rate of interest and it hurts your credit history and score.
5. Keep your card info handy along with the contact details of the customer care of your card issuer. It would be necessary in case you have to report a loss of card.

---

Between you and me: What is your experience using credit cards? Do share with me in the comments or over email. I look forward.

—

Now get my FREE ebook “5 Lies about Money that can hurt you Financially and Emotionally”. Simply subscribe to the blog using the box on the right hand side of the website and you will get the link in your inbox. SUBSCRIBE NOW. It’s FREE.