Do you often make minimum / part payment on your credit card? Are you familiar with the various credit card fees and charges that are levied when you do so? Are you aware these can pull you into a never-ending debt trap?
You can set some of those worries at rest if you use an app like Walnut that tracks your spends and gives you timely reminders on upcoming bill payments.
Now that you’re familiar with your credit card statement and the terms in it, here’s a quick primer on some other terms that you will come across when using your credit card.
Till some years ago, most cards (Silver/Classic/Gold etc) used to have an annual fee of Rs.750 onwards. Of late, this situation has reversed and a majority of cards are now ‘free’ depending on your relationship with the bank. However, the higher end credit cards still charge annual and renewal fees. On the flip side, they also offer a wider range of membership benefits, including sign-up rewards points, airline vouchers, membership to select airport lounges, affiliation with top clubs or hotels and so on. Renewal fees are often waived off for the next year if you spend a certain amount in the preceding year.
Late Payment Fee
A fine levied when you do not pay even the minimum amount due on the card as per your statement. Some card issuers charge a fixed amount while some charge on pro-rata basis depending on the outstanding amount, typically upto a maximum of Rs.700 although this could vary.
If you make only a part payment of the total outstanding, your next statement will have an interest component charged on the balance amount. Depending on the type of card and your record, it could vary from 1.5% – 3.5% or more per month. It is charged on any fresh purchases as well, if the previous balance isn’t fully paid.
Cash Advance Fees and Interest charges
Although highly inadvisable, you can use your credit card to withdraw cash from an ATM, and you will be charged a fee for the withdrawal, usually between Rs 100-200. This option should be used only in an emergencies as there is no free credit period here. Interest on cash advances is charged with immediate effect till the time it is repaid in full. When you make a card bill payment, this cash component is cleared first, followed by your other outstanding dues.
If the total outstanding amount on your card exceeds your credit limit, the bank charges between 2-3% of the over-limit amount. In rare cases, they may agree to extend the credit limit for an emergency, which then has to be paid off within a stipulated timeframe.
Payment Return Charges
While a lot of users have begun making card bill payments online, a significant percentage continue to make cheque payments towards their card bills. In case of a returned cheque, banks levy between 2-3% of the amount, subject to a minimum fee.
Rewards Redemption Fee
When you want to redeem the rewards points accumulated on your card, the bank charges a fee (usually between Rs. 75-100) on every such request. This is often waived for higher end cards.
Balance Transfer Processing Fees
If you wish to avail of a balance transfer by using the available credit limit on one card to pay the outstanding on another, the bank levies a processing fee which is around 2-3% of the balance transfer amount.
A Government tax which is levied on all fees, interest and other charges. Presently, it is 14.5% after the addition of 0.5% Swachh Bharat Cess from November 15 onwards.
Some other charges levied are surcharge on purchase of petrol/diesel, purchase of railway tickets, foreign currency transactions, issuing a duplicate card, processing fees on outstation cheques and so on.
However, not all is bleak on the credit card front, and there are ways in which you can maximise your credit card usage by way of rewards programmes, which we’ll cover in a later post.