Choosing the right kind of plastic

DEBT WISH

How many of us have ever thought of a going in for a comparison shopping for a credit card?

What is not known are the varying terms and conditions that can make a difference to how much one pays for the privilege of borrowing. It is only after receiving the bill that many of us find the true meaning of hidden costs.

So before selecting a credit card, take into account some crucial things. The most important of these is to see how much the card will cost you. Owing to the high level of competition, almost all issuers offer the same facilities. But still, keep a tab on the following:

Annual fees: Most credit card issuers charge annual membership or participation fees. The fees range from to Rs 350 or Rs 375 for the 'mini card' (for example, the ICICI mini Visa card) or some specific card such as the Citibank Cricket card, it can go up to Rs 2,000 for premium or gold or international cards. Though many banks offer you card without any joining fee, some even charge a joining fee for gold cards.

The best deal, of course, is the no-fee card. But since there is no specific standard in charging the annual fee, some bargaining might help you get the annual fee reduced by half or even completely waived.

Fees on cash advances: Many issuers charge cash advance fees, which typically amount to between 2 per cent and 3 per cent. Across all the cards available in India, the charge for cash advances is 2.5 per cent or a minimum of Rs 250. But, according to the type of the card (standard, silver, gold), the fixed charge may go down to Rs 75 per transaction.

Interest on balance transferred: The cost of a credit card also includes the interest charged on the balance transferred from one card to a new card. Normally, banks charge 1.75 per cent interest on the balance transferred, and the balance transfer will have a special limit.

Before transferring the balance it is necessary to know the limit (which normally is fixed to the first six months of joining).

One cost, the most hidden of all, is the charge for lost card liability. Most banks have standardised it at Rs 2,500, it is better we question the issuer of the card whether we have to follow it up with a complaint to the police, and how much he will charge for a replacement card.

Credit limit: Once the cost of the card is factored, the next important factor is the line of credit, that is, the amount the issuer will allow a cardholder to charge or simply put the credit limit a bank is ready to give us.

It is common sense to accept a card with the highest credit limit. It should cover your needs and emergencies and, of course, a big purchase. But not so high as to encourage overuse of credit.

Credit limits can usually be reduced or increased by contacting the bank. But again higher credit limit means higher annual fee. So a balanced approach is better in selecting the credit limit.

Offers: Credit card companies often use rewards to entice consumers to use their cards. Examples of incentives offered include personal accident insurance policy, both road and air, number of addon cards, frequent flier discounts, rebates on high-value purchase, reward points for filling petrol and free club memberships.

Consider whether the "incentive" could be obtained at less cost for cash. But then some of them could be quite meaningless to you.