Credit card - FAQ 2

... this is a continuation of my previous post FAQ 1 on same topic.

What happens when my credit card payment is late?
If you don’t make the monthly repayment by the date specified on your statement, your provider may charge you a late payment fee. They might even stop your card. Late payment fees, as the term indicates are payable in he event of any delay in repayment of the out standings on your credit card after the stipulated ‘interest-free period’. These charges are very steep and card members are well advised to pay off at least the minimum amount due on out standings every month.

What does rolling over credit/ revolving credit mean?
You have two choices for making card payments. You may clear your full dues as soon as you receive your billing statement. Or you may choose to pay the minimum monthly installment mentioned on the statement (which is usually between 5-10 percent of the total amount outstanding as on the date of the statement) and avail of revolving credit on thebalance. In other words your credit amount rolls over to the next month and so on. In a majority of cases, interest will be calculated on the average daily balance method on the unpaid balance plus amounts incurred for new purchases. Average daily balance depends usually on the amount outstanding and the number of days it is outstanding for.

What is the catch with low interest balance transfer offers?
Low interest balance transfer cards can save you money on interest payments; you just need to consider all the features of the card. Some cards charge a balance transfer fee. Also, be aware that the low interest rate charged for balance transfers may not apply to purchases. So, if you start spending with your card, you could end up paying a higher interest rate.

Should I consolidate my credit card debt?
If you’ve got several credit card debts, it makes much more sense to transfer your balance onto one low interest card. Interest rates tend to be lower on balance transfers, so you’ll be saving money and making repayments easier to manage. Make sure you cut up your old cards once you transfer your balance.

What sort of tricks should I look out for when looking for a credit card offer?
0% balance transfer rates can seem very attractive but make sure you know what you’re getting into. The rate will only apply to balance transfers, not purchases and be only for a limited time like 3 months. So you could end up paying the provider’s typical rate or higher, if you make any new purchases. You can also end up paying charges if you use your card to make cash withdrawals. You’ll be charged a standard fee, however much you withdraw. Plus, you’ll start paying interest from the moment you draw your cash out.

What should I check before applying for a credit card?
- What is the interest rate for purchases?
- What is the interest rate for cash withdrawals?
- What’s the period of free credit (the maximum is 56 days)?
- Will you be charged if you miss a monthly repayment?
- Is there an annual charge?
- Are balance transfers possible?
- Are there any rewards included with the card?
- Is travel insurance included with the card and if so what cover is provided?

How many credit cards should I have?
It’s advisable to limit your credit cards to just two – one for balance transfers, and one for purchases. This is because the rate often differs according to what you’re using the card for. It’s generally not a good idea to have more than two cards – you may damage your credit rating if you have lots of credit cards. Also, it’s much easier to build up debt and much harder to keep track of repayments if you have lots of different credit cards.

What is the minimum balance you must pay on a credit card each month?
Every month you must make a minimum repayment towards your debt. Typically, this is around 5% of your balance (which will include interest).
If I pay off the full balance every month will I ever be charged interest or other fees? As long as you pay back the amount you owe before the interest rate kicks in (this varies from card to card), you won’t be charged interest. However, if your provider charges an annual fee, you’ll need to include this in your repayment.

If I don’t pay off my balance in full, how much will it cost me in interest?
If you don’t pay off your balance every month, the remaining amount will be added to your next statement. Interest charges will be backdated to when you made the purchase, so you’ll actually be paying two lots of interest on your remaining balance; for the month you made the purchase and the month you carry your balance over.

How do cash advances from a credit card work?
You can use your credit card to withdraw money from a cash machine – this is called a ‘cash advance’. Before withdrawing money, check the amount your provider charges for this service – there’s usually a fixed charge and you’ll start paying interest on this from the day you withdrew the cash.

What is a supplementary/add-on card?
An add-on card is usually for your dependents - spouse, parents or children. Any additional cards under this head come at a fee, which varies between Rs 100 to Rs 1,000. All expenses on the card are billed to you.

What does the purchase protection feature of credit cards mean?
The purchase protection feature automatically insures all items bought on the credit card from damage or loss due to fire or theft up to a certain sum of money.

What are the advantages of owning a platinum credit card?
Platinum cards often offer extra features, such as a low interest rates and rewards. However, to qualify you need to have good credit and a good salary.

What is the difference between a credit card, charge card and debit card?
A credit card allows you to pay for service or product over a period of time. Up to the first 55 days of credit come interest free. You can chose to pay your entire debt at one go or you can pay a minimum amount every month. A charge card works on similar lines as the credit card with one difference. With a charge card you have to pay the entire dues within the credit period. You cannot carry over any balances like a credit card. The most important differences between the two types of card are that charge cards charge a much higher interest rates and can usually only be used in just one merchant or brand. A debit card enables you to access your bank deposits for payment. When you make any purchases using a debit card, then your bank account is automatically and instantly decreased to the extent of the purchase amount