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Swipe with care

Credit and Debit Cards are termed as ‘Plastic Money’ because one would use them as real money. While a debit card enables an account holder to spend money that they already have in the bank, a credit card allows a person to use the money that they don’t have. The process of using a credit card is fairly easy, which is why using it to spend the money you don’t have can become a habit fairly quickly. By the time one realizes this, the cardholder could be buried under a mountain of debt. Young professionals with a lot of spending power get lured into getting a credit card with various offers. In most cases, owning a credit card is also a status symbol. In fact, the origin of credit cards can be traced back to status and identity.

In 1949, American businessman Frank McNamara came up with the idea of a credit card as an alternative to carrying cash. Credit cards were made of cardboard until 1971 when plastic replaced it as a more durable alternative. That’s when the term ‘Plastic money’ came into being. By then, Plastic Money had become a global phenomenon thanks to MasterCard and VISA — considered to be the biggest names then. Today every bank issues credit cards and they’re commonly used across the world. Cards offered in India operate under the rules and regulations as stipulated by the Reserve Bank Of India.

1950s-era credit cards were the brainchild of Frank McNamara of New York’s Hamilton Credit Corporation.

The Process

There are two types of credit cards –

1) Personal credit cards

2) Corporate credit cards.

A personal credit card requires you to fill in your

  • Name

  • Address

  • Date of birth

  • Names of dependents in your family

  • Your profession

  • Annual income

  • Current debt

  • Bank account number

  • Bank name

  • Address of the branch

  • Details of the property you own

  • PAN card

  • Aadhar card

  • Salary slip or monthly earnings with the application

  • Other details in the application form

You can also ‘add-on’ one more person who can use your card for an extra fee. In this case, the husband and wife can avail the same credit card facility. Hotels, shops, airlines, service establishments and others who accept these cards are called ‘Member establishments’.

When a cardholder receives a bill, they can offer their card as a mode of payment. The member establishment swipes the card on an ‘imprinter’ machine. If the card is valid, the details on the card are registered and sent to the issuing bank. A receipt is offered to the cardholder and a copy of the receipt is kept by the establishment. In about 15 days, the establishment receives a payment from the bank.

A bill is generated on the stipulated bill date and sent to the cardholder. Each card has a ‘Due date’ which is the specific date on which the bill must be settled, failing which, the credit card company levies a financial charge and a heavy interest on the amount outstanding.

Choosing a Credit Card

If you are someone who tends to spend a lot, it’s best you stay away from a credit card. Apply for a credit card only if you are willing and able to settle your credit card bill diligently before its due date. Make sure that you are well informed about the interest rates in case of delayed payment. Make sure you know your credit card limit and use it wisely. It’s easy to get lured by offers and reward points. Beware of these traps.

Paying your Bills

To use a credit card, you must understand that it is an instrument that allows you to borrow money without any interest for 30-40 days. Some cards allow you to pay a small part of the money borrowed and pay the rest of the amount with an additional interest rate. However, if you fail to pay your bill on time, you could end up paying a lot of money in interest and fines.

  1. Let’s say you spend INR 5000.
  2. You need to pay 10% of that money, i.e. INR 500 on or before the due date.
  3. For the rest of the amount, the rate of interest could be higher than 16%.
  4. In case you fail to pay the minimum amount due, you could end up paying an annual interest as high as 50% on the outstanding amount!

Some companies may even charge an additional fine ranging between 1.99 to 3.5 % for non-payment of bill.

Hidden charges

Cash withdrawals on credit cards are very expensive and usually cost INR 300 or 3% of the amount withdrawn, whichever is higher. The more cash you borrow, the more you have to pay. Though the card offered to you may not have an annual fee, there are many other charges you may not be aware of. These include cash payment charges, charges for issuance of a duplicate bill or late fees.

These hidden charges will also attract an additional 18% on account of Goods and Services Tax (GST).

Use with care

If used smartly, credit cards prove to be a great advantage. They are also very handy in emergencies. However, indiscriminate use of the card and failure to pay the card off can lead to huge debt. If you are a well-informed and a diligent credit card holder, it will actually work for you.


 – Vinayak Kulkarni | Kalnirnay English calmanac February 2018

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