Credit cards are a useful financial product to have in hand, whether it is for the purchase of daily groceries or for luxury goods. If used responsibly, credit cards are more beneficial to use than debit cards because of the reward points, cashbacks, instant cash available in the case of emergencies, etc. However, everyone agrees that there are various credit card fees that can add up to a substantial amount. These charges are displayed on the card's information page on the bank's official website as well as the informational brochures, whether it is an e-book or in the welcome email. If you want to save on money, then it helps to save money on credit card fees. To do this, you need to first understand what are the most common charges on credit cards and then you can take steps to minimise them.
There are some credit card charges and fees that are mandatory, which you cannot avoid. These are the annual fees and renewal fees. This will depend on the kind of card you have and the various features and rewards that you offer. It can range anywhere from Rs.500 to Rs.10,000. There are also renewal fees, which are often waived if a certain target of spends has been reached the previous year.
However, there are other fees which can be avoided if you are aware of it. An example of this is the cash advance. A cash advance fee is charged when you use your credit card at an ATM to withdraw cash, just like you would use a debit card. This can be quite high, around 2% to 3% of the amount withdrawn, with a minimum of Rs.500. This will be billed in the next cycle's bill statement. You have to remember that the finance charge can be charged from the date of withdrawal itself until the payment has been fully made. This is why it makes sense to use your credit card to withdraw cash from an ATM only when absolutely necessary and in unavoidable circumstances, such as a financial emergency.
The next charge that can be avoided are the late payment charges. This is charged when you make your credit card payment after the due date. The late payment charges can range from Rs.100 to Rs.5,000. There are some banks that do not charge these fees if the statement balance is a minimum of Rs.100. You can avoid late payment fees by making your credit card payments on time, even if it is the minimum payment due.
The currency conversion fee is the next high charge that is on your credit card. This is charged when you use your credit card abroad and the fee can range from 3% to 4% of your transaction. The way to avoid this would be to use cash itself when abroad.
The next avoidable but very high charges on credit cards are what is charged when you make only the minimum payment due on your credit card bill. This is because the balance amount will start accumulating the interest, which can be more than 3% per month based on the bank, which will amount to more than 36% per annum, which is almost double the interest rate charged on a personal loan. The only way to avoid this is if you pay your entire credit card bill on time.
One way to make sure to avoid these charges is by automating your credit card payments by pre-paying or scheduling them through your net-banking to be linked to your savings account so that as soon as the bill is generated, the amount is fully deducted from the savings account. This can also help you spend within your budget or keep your purchases within the credit card limit, so that your money is not fully depleted by the start of the month itself!
Now that you know all about the additional charges that can incur on your credit card, you can take the necessary steps, as described above, to bring them under your control and minimise these charges to maximise your savings. That would ensure that your credit card is used wisely at all times.
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