Careful and intelligent use of credit cards can bring unimaginable benefits. Here’s how:

Pick a card, any card, is how a magician keeps you hooked through the show. A similar ploy is used by credit card issuers to entice customers. Close to five million new cards is what over 40 banks and card companies issued to willing credit-takers in 2006. The convenience, security and power to spend was what drove these customers to put plastic in their wallets. Says T.R. Ramachandran, business manager (cards), Citibank India: “Credit cards offer tremendous convenience at a very marginal price. The onus is on the consumer to find out how he can make the most of the expedience of a card.

One such savvy consumer is 42-year-old Delhi-based Tarun Sarda. An exhibitor, Sarda uses his card to pay for almost everything—from groceries to air tickets, from fuel for his car to business expenses on hotels and convention centres. “I like to think of myself as being card smart,” he says. Sarda’s work involves extensive flying— at least five cross-country trips a month and several overseas trips in a year—and he uses his American Express Platinum charge card to the hilt. “I figured that given the kind of expenses I have, if I used a card I could gather enough reward points to buy myself a new car.”

Smart Tips

DO NOT have more than two active cards REQUEST for change in payment date to suit your income flow AS FAR as possible, pay off the full monthly balance by due date LOOK for a card, preferably with a low rollover interest rate INTEREST rate on cards can vary from 1% to 3% a month LOOK for a card with no annual fee or a low fee USE credit card records to keep track of your spending THE CARD company may also send a category-wise spending detail AVOID using a credit card for low-value transactions

Sometime in 2004, this smart card user did just that. He redeemed the nine lakh-odd reward points he had collected on his card to buy a Hyundai Elantra. “I paid Rs 2 lakh above those points to get that car. This year I am eyeing a Prado,” he chuckles.

Sarda is a member of a small but fast growing tribe of smart credit card users who are well-versed with every card trick that can give them additional value and benefits. They use the card for convenience, manage payments on time and enjoy the benefits that are bundled in the 2” x 3” piece of plastic.

There is a new kind of credit card being offered almost every other day, each having some unique feature. You not only have to be aware of the feature, but understand how to extract maximum benefit out of it. For instance, even the most basic credit card allows up to 53 days of free credit—a feature many cardholders are unaware of (see box Double Delight)

For the beginners, there are three kinds of plastic money. Credit cards are for those looking for a 22- 53 day interest-free period before they repay the entire bill or roll over the balance for a fee.

Deepa Ksheersagar, 27, Mumbai: This ad professional uses her debit card for small purchases and reserves the credit card fpr bif ticket spending.

Charge cards are for those who wish to pay the entire bill but don’t want a spending limit. Debit cards are for those who don’t want to be bothered with bills and want to pay immediately.

And then there are variants to suit the user’s profile and usage pattern. For instance, if you frequently use a credit card to buy fuel, it makes more sense to go in for a co-branded petro card which offers greater auto-related benefits such as no fuel surcharge and discounts on servicing and lubricants. Frequent flyers should opt for airline cards where they get discounted fares, free upgrades and help in hotel reservations. Compulsive shoppers stand to gain if they get cards co-branded by retail chains, which means discounts at their stores. There are now even EMI credit cards where all purchases above a specified amount are automatically converted into EMIs.
 
Co-branded cards also bring in additional reward points and benefits when used for a particular category. Standard Chartered Bank’s Diva card, which is targeted at women, gets you discounts on jewellery and leading cosmetics brands.

Then and Now

S.S. Rathi 54, from hyderabad, recalls his experience with India’s first credit card. When I signed up for a Diner’s Club card in the early 1980s, a credit card was considered a status symbol in India. The membership was extended after a lot of screening and the fee was a princely sum of Rs 1,000 per year. The Diner’s Club card focused on travel and entertainment. It was very useful for a businessmen like me who traveled extensively in India and abroad. I remember how once I had a business meeting at the airport lounge because of paucity of time. The facilities extended by the card company at the lounge were so good that I did not miss my office secretarial staff at all. That was the pre-Internet and cellular phone era, and even a fax machine was a luxury those days. But thanks to the privileges extended to me as a Diners Club member, I was able to sign this deal with a foreign partner. Clearly, the benefits of the card went beyond dining and travel. A good credit card, like the one I use, will extend several benefits to users. You can be sure of top-notch customer service, you have your own personal concierge service which you can access via phone or online 24/7. They pretty much do anything you ask—whether it is making dinner reservations at a fancy restaurant, or obtaining hard-to-get concert tickets. They even fax you dinner recipes or refer a top-rated restaurant and recommend services for your home or business. Over the years, several new cards have come into existence. A credit card is no more a status symbol today, but a necessary evil. Cards today come free for life and are even sent without filling any forms. But if you need value from a card, it will never come for free. A fee is to be charged which should then deliver beyond the obvious—something that my card has been demonstrating without fail. I have added and discarded many cards over the past 15 years. But I still retain my first Diners Club card.

Says Rob Hennin, vicepresident and country manager, American Express India: “Cardholders are seeking valuepacked features that go beyond the convenience and free credit intrinsic to a credit card.”

For Mayank Agarwal, his Citibank-Jet Airways Gold cobranded card is a powerful tool in his business which requires extensive travelling. “I get free airline upgrades and discounts on airfare and hotel reservations,” he says. Agarwal now has an Amex Platinum card that comes with free ticket offers from Kingfisher Airlines. “One has to look at more than one card to maximise gains,” he says. The hefty joining fee of Rs 50,000 did not deter him. “It is packed with a lot more. I have already extracted more value than the fee,” he says.

Even without co-branding, a credit card packs quite a lot of punch for the user. Most credit cards—co-branded or otherwise— today waive the fuel surcharge. Others offer discount deals and special prices to select customers.

While credit cards offer tremendous ease to users, too much of anything can be bad. Don’t be tempted to take a new card just because it is being offered free. A repertoire of cards in your wallet may seem like a power statement but in reality it means juggling accounts, statements and cheques through the month. Just two credit cards are enough for a normal user. Delay in the payment of even one of the many cards you own could result in a penalty that cuts into the gains from free credit of other cards.

Multiple cards is the smallest of problems. Unless you are a disciplined spender, it is easy to get carried away by the sudden flush of cash. Even the most aspirational stuff seems within reach. “Many cardholders forget that the credit limit does not reflect their bank balance,” says Prasad. The challenge is to be able to balance the two, so that the card does not turn one into a compulsive shopper and push him into a debt trap.

This is where debit cards come into the picture. A debit card is linked to a savings bank account and the transaction amount is debited immediately when the card is swiped. It helps control unbridled spending because one can spend only as much as his bank balance allows. And unlike credit cards, they can be used to withdraw cash from ATMs without any interest charge or cash withdrawal fee.

In effect, a debit card is like a pre-paid cell phone connection where you can talk only till there is enough balance. On the other hand, a credit card is like a post-paid connection where you can talk unhindered only to be slapped with a fat bill at the end of the month.
But debit cards do not offer the option of rolling over credit.

As long as you don’t make a habit of it, it is not a sin to roll over the balance once in a while. After all, it helps you get over a temporary cash crunch. Credit cards charge 2.5-3% interest per month every time you postpone your payment. Rolling over a balance of Rs 25,000 for a month costs you around Rs 700 (see MONEY TODAY Basics page 49). But if you religiously pay your bills by the due date, a credit card is the one for you.

Card issuers are now slotting cardholders into good, bad and ugly categories. The good guys are the ones who pay on time, the bad guys are those who sometimes miss payments and the ugly ones are the rank delinquents.

Expectedly, the good guys get rewarded. “We have a dynamic differential interest rate programme that rewards cardholders for loyalty and high-spending patterns,” adds Ramachandran. Plus, card companies give preferential rates to customers with a good record. A credit card can be a potent power or peril, depending on how you use it. More on this in the next section.