iDentistry The Journal identistry_may_aug2019 | Page 26

The Journal
say so in a literal sense.
withdrawals attract an additional transaction fee
(unless specified in the card offer document).
2. Non–payment of dues on time:
5. Utilizing full limit:
Credit card companies don’t like customers
who miss payments. They send reminders by
email, postal mail (if registered for physical
statement) and SMS, telling us when the
payment is due. Don’t ignore these alerts.
Missing a payment attracts penalty as well as
interest on the outstanding amount. Even worse
would be the fact that spends and purchases
made in the following month do not get an
interest free credit. The biggest loss is a
blemished credit history and lower credit
(CIBIL) score, which adversely impacts our
chances of availing any credit facility in the near
future.
3. Payment of only the minimum due
amount:
Credit card companies want us to revolve the
credit so that they can earn a fat interest (after
all, they are there to earn only) on our
outstanding amount. If we pay only the
minimum due, we are charged 3–4% interest on
the unpaid amount. This works out to be
36–48% annually and is by far, the most
expensive form of debt. When we have an
outstanding balance on our card, the interest
free period on purchases does not apply either.
Any additional spends accrue interest from day
one and we end up paying hefty interest costs
causing the beginning of our financial doom
sometimes.
4. Withdrawing cash:
Credit cards allow users to withdraw cash from
ATM’s albeit at a very high cost. There is a fixed
charge for any cash advance. This can be as
high as 2.5% of the amount withdrawn.
Withdrawals attract a high interest of 4–5% a
month. Unlike purchases at merchant
establishments, the interest rate meter on cash
withdrawal starts from the first day. During
international travel, foreign exchange cash
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A credit card gives the user, a freedom to spend.
Goods and services that once appeared
beyond one’s reach becomes available with the
swipe of a card. However, if we use up a large
portion of the available credit limit, our credit
score gets a hit. High credit usage portrays the
user as credit hungry with a potentially higher
chance of default. This adversely affects the
credit (CIBIL) score and may make it difficult for
us to access additional credit facilities.
6. Spending to earn rewards:
Card companies encourage us to spend more
by offering reward points on every expense.
While it sounds enticing, don’t spend only to
earn reward points. Also, don’t wait too long to
accumulate points. The reward points lose
value over time like money. If 9,000 reward
points can fetch a reward point item today, may
be a year later, the same item may need 12,000
points.
7. Closing cards randomly:
People sometimes shut their card accounts
randomly, however, this is not advisable, for e.g.
if we have two cards with a credit limit of `
50,000 each and we spend ` 30,000 a month,
the credit utilization ratio is 30%. If we close one
card, our credit utilization ratio jumps to 60%. A
higher credit utilization ratio hurts the credit
score, thus making it difficult to avail loans in
future.
Catch 22 Situation – Things to remember
during Debt Period
Sometimes a debt situation seems like a never
ending drought as additional interest on interest
every month discourages us to plan some
recourse.
Vol. 15
No. 2
May-Aug 2019