What card is right for you? Don't let enticing introductory offers fool you!

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Consumers often find themselves swamped with so many credit card offers that it can be daunting to decide which product to choose. Needless to say, there's no specific credit card that's perfect for everyone.

So, before choosing, you need to do a number of things, including going through the fine print, examining your spending habits and capacity to pay, and deciding how you intend to use your plastic.

Since using a credit card is a form of borrowing, you need to look closely at the different charges, such as membership or joining fees, late and over limit charges and interest rates, suggests Sanjoy Sen, Citibank's consumer bank head for the Middle East.

A word of caution: Don't let enticing offers, such as a "low interest" or "no joining fee", fool you.

"Some credit cards that look like a great deal at first glance may lose their appeal once you read the terms and conditions of use and calculate how the interest, fees and hidden charges could affect your finances," Sen tells Gulf News.

Steve Gregory of Holborn Assets recommends that you ask the bank for a full breakdown in writing of all the charges on the cards, including interest rates. He cautions that lower interest rates are usually valid for a "reduced period" of six months only, so the bank can change its terms and conditions when it wants.

"If they won't provide literature you can read, they are hiding something. Walk away," he advises.

It is also important that your choice of card has a redundancy cover or a payment protection called "credit shield" so you won't find yourself in deep trouble during unforeseen circumstances.

Brochure

"Ask for a brochure on it before the bank opts you in. Some banks cover redundancy, most do not. It's advisable to have redundancy coverage for many people, as the bank would then claim on the insurance and pay payments for them for six months if they lose a job. That is preferable to a police case and possible imprisonment if you lose your job and cannot pay," adds Gregory.

The other two important things that you need to consider are your ability to pay and spending habits. If you honestly feel that you can settle your dues every month, then you don't need to worry about interest rates and late payment fees. You should, however, check for hidden charges, such as a high monthly "maintenance fee" which you may have to pay even if you clear your dues on time.

"If the customer has the financial ability to make the full payment every month, then the interest rate should not affect the customers' decision on the card type. This customer should then look for what value the credit card can provide in terms of reward on his or her monthly spend," advises Sen.

"We would recommend they make sure they are getting good value on what they are spending (such as cash back or reward points)," says Amin Mohebbi, chief marketing officer of Dubai First.

If you can make only the minimum payment every month, it is prudent to opt for the card with the lowest interest rates, low late fees and other charges.

Sen says that if you're an expatriate and the plastic is going to be your go-to card for most of your purchases, it would make sense that you go for a product that you can use for daily purchases and gives you access to travel-related perks at the same time.

If you only intend to use the card in emergencies, Sen recommends a card that requires low annual fees and offers global access and benefits. This way, you can use your plastic anywhere in the world in an emergency.

Know your charges, it could save you a packet

Do you know how much you pay for unpaid credit card balances? Banks impose various charges and the way the rates are calculated may also vary.

In most cases, banks levy monthly interest rates and late payment fees on outstanding bills. Additional charges may be applied in case the customer is one or more payments overdue.

If, for instance, you have spent Dh300 in shopping in one month using a credit card with 2.59 per cent interest and you decide to pay only the minimum amount due, that doesn’t free you from extra costs. The bank will still charge you the interest. If you want to avoid paying interest, settle your Dh300 credit on or before the due date.

In the event that you fail to pay for what you have purchased (Dh300), including paying the minimum amount on time, you will be slapped with a late payment fee, which can range between Dh100 and Dh165 per month, aside from the interest.

So, in this example, your total outstanding on the next due date could be Dh456.77 (Dh300 + Dh7.77 {interest rate} + Dh149 {late payment fee} ), but this is not always the case, since charges are calculated on your daily balance and any transactions in between can affect the computations.

“Finance charges can be more or less than Dh7.77, depending upon the date of transaction and any payment made in between But, for example, if only one transaction of Dh300 is made on 1st of March, no transaction and payment is made in between and the next statement is generated on 5th of April, finance charges will be Dh9.061 (for a card with a 21-day grace period),” explains one bank source.

If you are again unable to pay the balance after the next due date, your monthly interest rate can increase, probably by one per cent, depending on your bank. The above calculations are for illustration purposes only and don’t necessarily mean banks follow the same formula.



Make payments responsibly and there's no need to worry

The beauty of credit cards is that most banks let you use their money for free, as long as you pay your bill in full each time it’s due. The challenge then lies in how cardholders use their plastic wisely.

“If a customer clears the total retail outstanding on or before the due date, without any cash withdrawal transactions involved, no finance charges would be applied,” confirms Mustafa Ramzi, head of HSBC cards in the UAE.

For Ramachandran Nair, an expatriate from India, the key to enjoying credit cards without running into trouble is proper management of monthly bills, coupled with vigilance.

“If the purchased value is settled within the time frame given, I see the use of credit cards as very convenient and flexible. I always clarify with the bank if there is any discrepancy in the statement of account. The bank should not change the charge without advising the customer as it is bound to (adhere to) the agreed terms and conditions,” Nair tells Gulf News.

Matthew Litty, another Indian expat, agrees, saying that he tries to settle his financial obligations on time to stay out of trouble. “It is normally when you don’t make payments on time that the charges increase with the late payment. In my opinion, a credit card is a nightmare, but it all depends on the way you use it. If you use it unnecessarily, you will end up in deep trouble,” he says.

If it’s impossible to make the full payment, make sure you pay at least 10 per cent of the balance each month, rather than the five per cent minimum that banks usually demand, advises Steve Gregory of Holborn Assets.

“Pay at least five days earlier than they request, so you never pay a late payment fee. Never exceed your credit balance, otherwise the bank will fine you more than the cost of a parking ticket fine,” he adds.

Amin Mohebbi, chief marketing officer of Dubai First, advises customers to manage their credit card spending and payments responsibly. “We all need to make sure we plan our spending in line with our budget, so over time we can pay back what we spend,” he says.


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