Let's Automate the World

Once upon a time, it was a credit to be the proud holder of a wad of credit cards. One could walk into any shopping mall and walk out with cart-loads of stuff - all it needed was to let the nice cashier swipe a small piece of plastic and I put my POWERFUL signature on the dotted line. Quite later, it became obvious that some numbers on the card were more POWERFUL than the card itself or my signature because apparently there were wizards on the other side of the globe, who could help themselves to my credit balance without disturbing me for the card or my signature (how very considerate!). So I became very careful dealing with the card, I replaced all my card numbers, made incredible passwords for my telebanking and online accounts, so incredible that at times I even locked out myself and had to get them reset-ed, and paranoia.

And finally, I found out that while I had more or less succeeded in locking out the thieves outside my security ring, I was ignorant of the ones within. And I was letting them loot me while I looked the other way!!

So, who are they? Read, maybe you will recognise them too.

1. Late Payment Fee.
   Not Paying the Minimum Balance on time. Credit card companies will love you for this especially if you do this consistently.
2. Finance Charges : Outstanding Balance
   This is the bread and butter of the trade. If you do not pay off your complete billed amount by the deadline, you will get a finance charge, guaranteed. Most credit card companies will calculate the finance charge for the entire balance irrespective of the amount you paid (Eg. if my balance due was AED11,001 and I paid AED 11,000 and thought what the heck, no change, I will pay it next month, after all it is just 1 AED. The credit card company will be very happy it got back a major chunk of money so it can set it rolling again, AND anyway will levy finance charge on my complete 11,001 which was due AND the finance charge for each charge will be calculated starting from the day I made the transaction. At an average advertised retail rate of 3%, one month finance charge for a simple mistake could easily set me back by 400 to 500AED depending on how early my transactions were. Remember, credit card rates are quoted 'per month', so the 3% is actually 36% per annum, COMPOUNDING DAILY!!). Finance charges are like infection, once infected, it will remain and fester in one's account till the balances are cleared off completely.
3. Finance Charges : Cash Advances
   Balance transfers, credit card cheques, ATM withdrawals against credit card, etc. are all essentially cash advances. Credit card companies charge a flat rate transaction fee, which could be between 3-5% of the amount, on the spot. Finance charges start accumulating from the date of transaction till the day balances are paid off in full.
4. Cash Back Schemes
   Many cards now offer cash back schemes, promising to return 1% or 2% of your monthly retail spend. Merchants who accept credit cards at their establishments have to pay charges to credit card companies to clear their transaction, who in turn have to pay royalty to the brand-holders. Everyone adds processing fees and everyone adds mark-ups for their profits and the goodies they have to distribute, as cash-back, miles, loyalties, etc. Eventually, the customer ends up paying more by buying an item with a card than with cash. Savvy? It's like you sending me 1 AED and I return you 90 fils back. Some high-value goods bite too much into some merchants' margins that they will accept credit card payments only with a additional transaction charges. Esp. when buying gold or electronic stuff at most retailers'. Most cash-back schemes have minimum amount required to be accumulated before they can be redeemed, limits on monthly accruals, and might expire in one year if not utilized.
5. The difference between the Tranaction Date and the Billing Date
   Some credit card companies slyly use the term 'transaction date" in their terms and conditions instead of "billing date" as the day the finance charge meter starts running. Respectable credit card companies give 25 to 55 days of credit time, depending on how close to the billing date a transaction was done. By replacing the words, sly credit card companies do not give any time to holders. Regardless of paying off the complete balance in full every month, holders face finance charges every month. Most of such cards appear as co-branded cards bearing names of respectable establishments which blinds one to the trap. It is better to close such a card because no amount of loyalty points received can compensate the losses being made on the card.
6. Free For Life
   There is no such thing as a free lunch. What they don't take in front of you, they will doubly take from behind you. It is better to opt for a card with annual fees and benefits rather than a free-for-life card that hits under the belt by charging sky high ransoms, aka charges, no recourse in case of loss or forgery, no added benefits like automatic insurance coverage on retail purchases, etc.
7. Insurance Coverage (All types of "shields" and "covers")
   This is a feature that many credit card companies tout as an added benefit to card holders. Implied insurance will deduct either a fixed sum every month or a percentage of balance towards medical coverage / loss of employment / etc. Beware, it is a game of numbers. Read the fine print, and analyse every offer with a gunny bag of salt; there are too many loopholes in the terms that it will be next to impossible to qualify for a claim. Like one humorist put it, one needs to fall down 5.12 metres in 3 seconds, landing on the right shoulder, breaking the left arm and the right index finger in the process and lose hearing in one ear within 24 hours before one can make a claim. Then there are the time-tested procedures where they take out the Big Book of Terms & Conditions and give you ten reasons why they cannot process your claim. It would be better to go for a proper medical or life insurance policy instead.

Don’t Fall Into These Consumer Credit Card Traps

Getting the credit you need can be easier than maintaining it. In fact, you will be receiving a number of credit card offers in the mail every week. And there are even more credit card offers online. Thanks to the recession, credit card companies are going to the customer trying to entice them.

Stores - both in the mall and on the ‘net - are more than eager to give an immediate discount on your purchase if you sign up for their credit card. While that extra 10% off is tempting, much before you realize it, you have another credit card payment to make each month.

The problem with credit cards is that it doesn’t feel like real money. Since you don’t count out those currency notes leaving your wallet, it’s easy to underestimate the impact of a swipe here and a swipe there. Credit cards never get along with budgeting. No matter how easy it was to spend the money, each month there’s a day of reckoning on the payment due date. Making the minimum payment will keep from getting late fees, but the overgrowing balance will soon overtake your resources.

If you didn’t make another single purchase, how long would it take to pay off the balance? That’s a question you need to ask yourself. Don’t make the mistake of getting a second, third or fourth credit card just to transfer the balances, no matter what they offer you. Balance transfer is a great way to move higher interest debt to a lower interest card, but it is not meant to shuffle money like a shell game. Most people have more credit cards than they need or can afford.

Since the major cards are accepted practically everywhere, you only need one or two credit cards. It’s easier to keep track of the balances on one or two cards than on six or eight credit cards, which many people carry.

Cash advances are like getting a loan on demand. The problem is, it’s the most expensive loan you’ll get. The easy access to cash from ATMs makes it simple to get money for lunch, shopping and movie ticket for you and your spouse. The price for your easy access cash can be at the credit card rates of 24% and up. Not to forget the fixed cash advance fee for each time the ATM does a jingle for you. Do this once a week and your debt will skyrocket in a few months. The rewards and bonuses sound tempting, but you may find that getting a credit card with a better APR (annual percentage rate) and no annual fee is worth more in the long run than the freebies that you might not use even if you earned them.

Using credit cards is the way to establish a good credit history. The problem is that misuse of credit cards destroys your credit rating. When you need to buy a car or want to purchase a home, that credit rating suddenly becomes very important. Every careless shopping spree, every cash advance, every late payment - is factored into that credit rating. If you’re going to use credit cards, treat it like cash and only charge what you can afford to pay. Otherwise, you cheat yourself out of the credit rating you need in the future for really important purchases.

How to Choose the Best Consumer Credit Card

All credit cards are created equal, right? Wrong! It's like saying a dented, 1970s van is the same as a fully loaded, luxury 2009 SUV. Consumer credit cards can vary dramatically in terms and conditions that can either cost or save you money. Because financial institutions are very competitive in marketing credit cards, you'll find different terms and conditions among the different suppliers. If you’re a smart shopper, you’ll better pay attention to the fine print.

Naturally you want the most credit for the lowest long-term cost. Look for a credit card with a low APR. That's the Annual Percentage Rate or the actual cost for credit. It's basically the price of renting the credit card company's money for a period of time. Time is of the importance here. Make the timely minimum monthly payment, every time and you'll keep the stated APR. If your payment is late (or missing), some cards bump up your APR by several percentage points.

A late payment could boost your APR into the 18-22% range and it will stay there – there’s no reduction for making the next payment, because your late payment threw you into the high APR penalty box with no escape clause.

Let's assume that you’re a good credit risk and you’ll make the monthly payments on time. Look for a card that gives a little something extra, like bonus points that can be traded for gifts, restaurant meals, movie tickets, music downloads or travel and hotel stays. As you spend on your credit card, you actually earn something else that you want. That's making a good deal even better. There are some people who charge everything and pay in full each month, and are easily able to afford round trip first-class tickets anywhere in the world each year!

The fastest way to get a credit card and start shopping is to apply for the card online. In mere minutes, you can complete the credit card application and get approval almost immediately if your credit checks out. With instant credit, some companies give you a small opening limit so you can shop online right away. You have to wait a few days (usually 7-10 business days) for the actual card to arrive by snail mail. If you currently have a high interest credit card, you may be able to find a better deal online where you can transfer the balance and pay 0% interest for 6 months, or some comparable transfer incentive that makes it worth your while to make the switch. And don't forget, once your balance is transferred to the new card, cancel the old card.