There is no doubt that credit cards are the most convenient mode of payment. If you use your credit card smartly, then you may shop your heart out as well pay the bill amount with ease.

“But how?” is the big question.

First and foremost, your income defines your shopping budget. Let say your monthly income is Rs 25000 and the total expenses are let’s say Rs. 15000 (including all your personal expenses). Now you have Rs. 10000 handy. Common sense will tell you that this is your shopping budget. You would be wrong - your shopping budget is exactly double your saved amount i.e. Rs 20000.

Let me further explain how you could do it.

Let’s assume your bill statement is dated the 5th of every month and your due date is the 25^th of every month. For instance, for the amount you shop on your credit card starting, say, the sixth of February, the due date will be the 25^th of March, not the 25^th of Feb! In the interim, you will receive another paycheck, that of March. This effectively means that you have the Rs. 10000 from February (the current month) and an identical amount from the next month’s salary to shop with.

Mind you, I am not recommending this as an idea for out-of-control shopping. I am only putting this idea across for anyone who would want to time their purchases so that they don’t end up paying a penny more than what they have spent on high credit card interest payments.

Things have been happening so suddenly. It was a while before I realized I am almost stuck in a trap (or at least to me it seemed to be so). I am not much of a savings person. I use my credit card a lot.

The only saving grace seems to be that I have taken no loans and I have no liability.
Otherwise I’d be stuck in a debt trap. With no way to know how to get myself out of it. Let’s just say that I am one of the “lucky” ones. What about those who are not so lucky? What can they do when in a debt trap?

One option is to go to a financial advisor or consultant. But, they can be expensive.
The better solution is to approach a credit counseling center. There are several credit counseling centers in cities across India.

Some banks also have own credit counseling centers too, such as the Bank of India-sponsored Abhay, at Dadar in Mumbai. This agency, the first of its kind, also has centers in Gumla (Jharkhand), Wardha, and Chennai.

ICICI Bank’s credit counseling centre, Disha has centers at Ahmedabad, Hyderabad, Vijayawada, Kanpur, Delhi, Chennai, and Kolkata.

These centers will help you chart out a plan to repay your debts. You can swap your high cost borrowings for low cost debt. Interest rates may be bought down to as low as 18 per cent for levels such as 36 per cent in some cases.

These centers can also help you restructure the loan portfolios and formulate repayment plans. They may also help borrowers negotiate with banks for restructuring debts.

Here are the addresses:

• Abhay (Bank of India), 61 A, Sadanand, 1st Floor, Above Bank of India Branch, Gokhale Road (north), Dadar (West), Mumbai- 4000 028. Call 022-24221843.
• Disha (ICICI Bank), Prince Apartments, Ground Floor, Karani Lane, Ghatkopar (West), Mumbai 4000 028. Call 65971815/86/87. Visit www.dishfc.org
• Union Mitra (Union Bank of India), Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400021. Call 022-22896502.

Another familiar gripe - A little outstanding amount remaining on the credit card because of bank’s mistake, bank promises to waive off the amount and close the account.

But, surprise! The account has remained open, accruing interest. In a fairly new twist to this scenario, the bank now proceeds to divert payments made to credit card account to the customer’s loan account. Result? Outstanding dues in both accounts. Long term result? Credit card applications being rejected, loan applications being rejected…

The customer is not willing to pay the remaining amount because, he thinks, rightly, that he shouldn’t be left holding the baby because the bank screwed things up. And he asks, very sensibly, what are the guarantees that the bank will act towards removing his name from the defaulters’ list? (which, by the way, the bank cannot. Once your name appears on the defaulters’ list, it is there to stay for the next seven years.)

The answer to all this is not calculated to have customers such as the one mentioned above burst into song. The best way to deal with this kind of blatant chicanery is to indeed pay the outstanding amount up first. The more one delays, the more it affects the credit ratings. Once this is done, one should register a complaint on the bank’s website. And if one does not receive a satisfactory response within 2-3 weeks, approach the Banking Ombudsman with your complaint. Details on how to do this are available on the site - www.bankingombudsman.rbi.org.in.

Do not be surprised if your loan application is rejected even after you have paid off your much due credit card outstanding balance. The bank might have called you and given you an option where you could just pay a specified sum, in return for a settlement letter. Once you do that and get the settlement letter, it doesn’t for a moment mean that the slate has been wiped clean. You apply for a personal loan or a home loan and the lender will simply let you know that it isn’t interested in lending to you because your name comes up in the Defaulters list on the Satyam or CIBIL list.

When you go in for a settlement, banks can and will legally report you as a defaulter - to the extent of the dues foregone by them - at the credit bureau. All details concerning your default stay at the credit bureau for 7 years. You must understand that you CANNOT remove your name from this defaulters’ list. It will be removed from the list only after seven years, provided you do not default on any subsequent loans (if you manage to get it, that is). What you COULD do is to try applying for a secured credit card - a card that is offered against your term deposits at the bank. This type of card is available at many banks. Build a good credit record with it. This will not remove your name from CIBIL defaulter list but it will improve your credibility in your credit report. This would also increase your chances of getting credit facility from various banks at decent terms in future.

The best way to avoid fraud is to know how the fraud occurs. Credit card fraud starts when the card is stolen or when the crucial information of the card is stolen. This includes name of card holder, the account number, expiration date, and verification/CVV code. Stolen cards should be reported quickly by calling the customer care department. But stolen information is difficult to trace and one can only know that the fraud has occurred when the bill statement. Ergo, one should also check bill statement carefully when it comes in.
Identity thefts on card are increasing these days. Identity thefts are of two types - application fraud and account takeover.

Application fraud refers to the fraud when the criminal steals your document to open an account in someone else name. The criminal may steal your important documents like utility bills and bank statements in order to build up useful personal information.

Alternatively they may create fake documents. In account takeover fraud the criminal may gather the information of a person’s bank account then the criminal calls up the bank as a genuine cardholder and ask the bank to send the mail to the new address. The criminal would then report the loss of card. And then once the criminal receives the replacement card, he/she can use it!

Skimming is another type fraud done on credit cards. It is typically done by the dishonest employee working with the merchant. In skimming the criminal uses a small electronic device which is known as skimmer to capture the magnetic strip data on the card. This is then transferred to another, duplicate, card. The duplicate card is then used for fraud purposes.
It is easy for the bank to detect this type of fraud. The bank can collect a list of all the card holders who have complained about fraudulent transactions. Then, it uses data mining to discover relationships among the card holders and the merchants they use.
For instance if a large no. of the afore-mentioned credit card holders have used a particular merchant, that merchant terminal or (point-of-sale device) can be directly investigated.

In case of application and account takeover frauds you don’t have to worry much. If any unsolicited card is activated without the consent of the recipient the central bank has said that the issuing bank has to reverse the charges. Plus, they (issuing bank) would be required to pay a penalty twice the amount of the charges reversed. All you must do is to report a complaint at the issuing bank. If you do not receive a satisfactory/any response within 2-3 weeks, please approach the Banking Ombudsman. The details are available at www.bankingombudsman.rbi.org.in.

The aim of writing this article is to help the merchant as well as the customer to avoid risk present in the customer not present (CNP) fraud. Here we will carefully learn how the CNP process works to avoid CNP-related frauds in the future. CNP transactions happen with the card holder not present at the point of sale. Here the card holder’s order is taken by the merchant over the phone, email, or by fax. The merchant is unable to check the identity of the credit card holder. CNP transaction is thus the most risky for both card holder and merchant. Criminals can take undue advantage of this by using fake personal details by illegally obtaining your card information.

During the CNP process the merchant request authorization from the bank to process the sale transaction. The bank verifies that the card is not stolen or lost, and checks whether the card carries enough funds or not, and then gives the go-ahead to the merchant to proceed with the transaction. Now, if the transaction results in a fraud, the full amount has to be paid by the merchant. And the card holder whose card has been used for fraud purposes comes to know only when he/she gets the bill statement. So….check your bill statement as and when it comes in. If you find any fraudulent transaction, report to your bank immediately. In CNP frauds, the card holder is still safe as the bank would not hold the card holder responsible. The merchant is not so lucky. It has to pay from its own pocket whatever the fraudulent transaction amount is. So what’s the solution to avoid it for both the card holder and the merchant?

• Merchants should avoid CNP transactions as a matter of course.
• If they intend to do it, they should do these transactions only with clients who they know well; which means they can recognise the client’s voice properly. Even in such cases, they should avoid the transaction at the first hint of suspicion.
• Card holders should not share their credit card details with anybody; not even with friends.

The Consumer Unity & Trust society (CUTS) has failed in convincing the Reserve Bank of India to pull down credit card interest rates.
(http://economictimes.indiatimes.com/ET_Debates/Cap_credit_card_interest_rates/articleshow/3473126.cms)

You would think that the CUTS would get some sense knocked into its stubborn head after repeated failures. After all, it has been at this for over five years. And even it they are fighting the good fight on our (the credit card consumers) behalf, the complaints are not going to go away. Neither are the problems. Whether interest rates go down or not, we ARE paying those interest amounts, month after month.

And let’s face it, no amount of sound logic is going to convince any of us who are inveterate spenders to slow down and maybe, you know,..spend less.

So, this will be just an exercise in questionable logic.

Do you wonder why when you just have Rs. 10000 to spend in a month, you end up spending twice that? How is that even possible?

Today is your lucky day.

Your income defines your shopping budget. Let say your monthly income is Rs. 25000; after expenses, let’s say you have Rs. 10000 free and clear. This is spending money, folks! Here comes the catch - Your shopping budget is actually twice that Rs. 10000! How? You know you can back Rs. 10000 worth of shopping on your credit card with this spending money. But when you are swiping that card, you know that you have a fifty day grace period before you gotta pay it back with interest. Guess what, your next pay will come in by then and with it comes another Rs. 10000 of spending money. So you are simply spending that money right now. Neat, eh?

Now, how do you do this smartly, so that you don’t default or end up paying exorbitant interest on all this?

Let’s say your credit card statement comes on the 5th of every month, and the due date of payment is the 25th of that month. Now, if you buy something on the 6th of the month, that purchase is listed only in next month’s statement. Which means, provided you pay up by every due date, you can blow the spending money of this month as well as the next month AND pay zero interest on the amount swiped on the card.

You are welcome.

Is the person who has overextended credit a candidate for sympathy if he means well? He wants to pay back the outstanding amounts against his multiple credit cards, but what if he has just been fired from his job and cannot make his multiple credit card payments? Do you castigate him, telling him that he made the bed, he must lie in it? If that is so, does your lack of sympathy extend beyond the fact that recovery agents came to his house when he wasn’t at home and threatened his wife and child?

If you are the sympathetic kind (especially if you also have been in a similar jam) would you:

1. Tell the man that recovery agents are not allowed use force on borrowers or speak indecently to him or his family?
2. Tell the man that if he doesn’t want to speak to the recovery agent, the agent has to respect his wishes and withdraw?
3. Point out to him the RBI stipulation that “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees, and friends, making threatening and anonymous calls or making false and misleading representations.“?
4. Point him to the Banking Ombudsman site www.bankingombudsman.rbi.org.in where he can lodge a complaint?
5. Point out to him that his best option would be pay off the entire amount. And then give him tips on how to do it - apply for a loan against property, stocks, insurance policy, or jewelry? But that he should try his best not to go for a settlement?
6. That there are credit counseling agencies, such as ICICI bank’s Disha, that exist for the very purpose of helping people like him?
7. All of the above
8. None of the above

Here are some credit counseling agencies:

• Abhay (Bank of India), 61 A, Sadanand, 1st Floor, Above Bank of India Branch, Gokhale Road (north), Dadar (West), Mumbai- 4000 028. Call 022-24221843.
• Disha (ICICI Bank), Prince Apartments, Ground Floor, Karani Lane, Ghatkopar (West), Mumbai 4000 028. Call 65971815/86/87. Visit www.dishfc.org
• Union Mitra (Union Bank of India), Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400021. Call 022-22896502.

Answers:
Correct answer - Option 7
Incorrect answer - Any other option or combination of options
So incorrect that it scares me! - Option 8

Do you know that largest number of complaints registered with Banking Ombudsman is of credit cards?

According to the Reserve Bank of India (RBI) Annual Report, the number of complaints in the year 2006-2007 increased by 22% from the year 2005-06. In 2005-06 the number of complaints received were 31,732 which increased to 38,638 in 2006 -07 mainly due to rise in credit card complaints.

The nature of complaints ranged from levying of late payment fee, levying of excessive charges and issuing of unsolicited credit cards etc.

Do you think that only banks are responsible for the rise in number of complaints? Certainly not; we as card holders are equally responsible for it.

We as credit card holders are not even aware of different terms used by credit card issuers and how the charges are calculated still remains a mystery. You need to read to understand the terms and conditions thoroughly but calculation of interest on your credit card and how it is levied is most important factor which you need to learn on priority.

This will empower you to know that how much you need to pay actually. . If you learn this, it will help you immensely as you will know not only the right amount but also the right payment procedure which is not quite practical otherwise.

In credit card terms, interest rate is known as extended credits or revolving interest rate.

Revolving interest is charged to the card holder when he/she fails to pay the entire due amount on the card before the due date.

Look at the example below to get an idea how the interest rate is calculated:

X made purchases on his credit card - a TV for Rs. 10,000 on 01 March 08 and jewelry worth Rs. 5000 on 10th March 08 - both at an interest rate of 3.2% per month. The table below highlights how the interest rate is calculated on these purchases:

This table above explains that interest rates are calculated on daily basis on balance outstanding from transaction date. That means if you don’t pay your entire due amount before the due date interest gets calculated from the very day till the due date. The unpaid amount is also levied interest from the due date till the next billing date - that is for 10 days as per the above table. Now the question arises that on what basis/formula the above interest rates are taken into consideration, the days are calculated.

Here it is:

Outstanding amount x Annual interest rate x No. of days/365

Interesting point here - interest rate is applicable only when you do not pay the entire due before the due date.

Benefits of knowing the interest calculation:

• You may realize that you are paying more than you spend.
• You may avoid unnecessary purchase.
• You may plan your finance better.
• You may pay your due on time or at least before the due date.

Check out this news story:

http://sify.com/finance/fullstory.php?id=14754431

The story is about banks, who seeing their interest incomes fall, are all set to increase the merchant fees on their Point of Sales (POS) machines.

How did it come to banks hiking the merchant fees on the POS?

The obvious reason behind this is that RBI has hiked CRR and repo rate. So for banks to lend money without charging any interest rate to the card holder for a period of 40 to 50 days (the period of credit) is becoming more and more difficult. The banks had to make some adjustment to cope with this rising interest rate scenario, and this POS rate hike was one way of doing it.

Another reason could be to cover the increase in the non-performing assets (NPA) of the credit card industry. As of now, banks are finding it difficult to control the rise in credit card payment defaults. While the hike will not help to entirely cover the defaults, it could help by defraying some of the losses – a higher POS charge might force the merchant to tap into a more financially sound clientele, thereby reducing defaults.