While ‘swiping’ is certainly more convenient and chic than rummaging your pocket for banknotes and coins (your worst nightmare on a date), have you ever pondered the true cost of carrying a credit card or plastic money in your wallet? The short answer—it is probably more than you may assume.
Here are a various fees you should be aware of before using a credit card:
The annual fee, also known as the annual maintenance charge, is the yearly cost to own a credit card. It is essentially charged for keeping your account open. Different credit card issuers offer various rewards and perks. To balance such costs, they charge an annual fee.
Having said that, one may come across irresistible free or no-annual-fee credit cards. In such cases, don’t get ahead of yourself; ensure to connect with the credit card issuer to confirm the veracity of such claims. Downgrading to a credit card with a lower annual fee can also help you save thousands of rupees every year, albeit you may lose out on certain benefits that your current card provides.
You may have noticed a ‘cash advance fee’ section in the billing statement of your credit card. This fee is charged by your bank for withdrawing cash against your credit line. Essentially, using your credit card for obtaining cash is more expensive than using it for buying goods and services.
Issuers charge this fee as interest on the amount of money withdrawn. Your ‘cash limit’, which is a portion of your general credit limit, is the maximum amount of money that can be withdrawn.
It is also important to remember that cash advances often do not qualify for the rewards and benefits associated with regular credit card purchases and that the concept of no interest ‘grace periods’ is not applicable when you use your card to withdraw cash. (High) interest is charged from the date the money was drawn out.
Credit card issuers levy late payment penalties if one does not make the minimum due payment on time. The crux of the matter is that the longer you delay your credit card payment, the severer the late fee penalty will be on your next billing cycle.
Nonetheless, it is better to pay credit card bills on time because your bank or issuer is likely to penalize you with sky-high interest rates (to the tune of 30%) on an outstanding bill amount that has been due for more than 60 days.
In a nutshell, this fee is charged by credit card issuers when you move the amount you owe from one bank to the other, or from one credit card to the other. More often than not, this is done if the latter offers a lower interest rate than the former, making it cheaper to pay your credit card bill. Before you do so, understand that there is a balance transfer fee.
Try to use this option only when the bank you are transferring your credit card debt to offers a lower interest rate than the one you originally owe the money to. Researching well and exploring your options will help you avoid paying an exorbitant balance transfer fee.
Have you ever received a message from your issuer saying that you have ‘maxed-out’ your credit card? If you have, then it means that you have reached, or exhausted, your credit limit. Doing so not only hurts your credit score (the bad borrower) but also subjects you to a big over-limit fee. By and large, banks charge between 2.5-3% on the amount that you have spent in addition to your predetermined credit limit. Moral of the story: push past your limits at your workplace and at the gym, not on your credit card!
Informed decision making is key to achieving financial security in the long term. Delving into various credit card fees can help you develop an informed opinion and weigh the pros and cons of owning and using one. Small credit card fees that initially appear to be negligible can snowball into a pretty penny over time.
In order to avoid facing such jarring reality checks, you should strive to cultivate and maintain financial discipline and make smart choices. Hopefully, you will give it some thought before pressing the ‘apply now’ button on the next email offering you a lifetime free credit card or swiping recklessly on Saturday night.