Skip to main content

Points to remember while using credit card or taking a personal loan

Here are seven pitfalls that you must avoid before swiping your credit card or taking a personal loan

 


   THE spending season — if it can be called that — is finally over. Holidaying, eating out, parties and the like have taken a toll on countless wallets or, more appropriately, credit and debit cards. While the damage facilitated by debit cards is measurable and hence can be controlled to an extent, the same cannot be said about the former. In case of a credit card, the credit period ranging from 30-45 days affords a sense of comfort which can often lead to overspending.


   Though the season of excesses is now behind us, it is never too late to learn some lessons on prudent borrowing. And what better time than the new year to put the learnings into practice? Here are seven points you need to bear in mind before swiping your card, or for that matter, knocking on your bank's doors for a personal loan, this year:

The 'Minimum Amount Due' Trap:

It is a mode of clearing your outstanding credit card dues that seems very convenient — paying only 5% of the amount every month to prevent the bank from initiating any action against you. But you need to remember that even if you pay this amount every month, it will not be able to rescue you from the debt trap.


   With the interest on the balance amount being a hefty 39-45% per annum, the outstanding amount is unlikely to shrink in a hurry. The ideal approach, therefore, is to use your credit card merely as a facilitator and ensure that the bill is cleared before the due date.

The Lure Of' Loyalty Cum Credit Card:

If you have ever visited malls and supermarkets, chances are that you have been offered a 'membership' or 'loyalty' cards a number of times. The store staff often cajole you into signing up for one – after all, there's nothing to lose, and scores of points to be gained on every purchase made that will entitle you to discounts. Most of them score high on utility, no doubt, particularly if you shop there often. However, you need to be wary of cards that insist on you using them for spending – these could be co-branded credit cards that carry at least an annual maintenance charge, if not an enrollment fee.

'Easy' Cash From Credit Card:

In an emergency, you can use your credit card to withdraw cash from an ATM. That may be reassuring, but you need to remember that you will have to incur additional charges – around 2.5% of the amount withdrawn – for the purpose. Many are not aware that in such a case the payment becomes due from the date of withdrawal and not after the expiry of the credit period.

The 'Real' Credit Limit:

You may know your credit limit courtesy the figure indicated by your card issuer, but are you aware of what it is made up of? It is not restricted to the amount spent using the card alone. Several cardholders are ignorant about the fact that the limit includes any penal charges levied by the issuer. If you exceed the limit despite being in the process of paying interest on any earlier outstanding amount, you may have to shell out overdrawing charges. To avoid these charges, make sure you read the terms and conditions of your credit card thoroughly.

Dangerous Leveraged Investments:

The New Year apart, January 1, also heralds the tax-saving season, prompting insurance agents and mutual fund distributors to persuade you into making tax-related investments. If you find yourself short of cash to make those investments, you may feel tempted to use your card or take a personal loan to tide over your 'temporary' fund shortage.


   A fundamental mistake, and the one that can burn a bigger hole in your pocket than what the tax outgo would have otherwise done. Such investments could come to haunt you later as they come with a lock-in period or necessitate recurring payments. Therefore, if you must borrow, do so only when you are assured of a fund inflow capable of clearing the debt in the near future.

A Record of Your Credit History:

The credit report – issued by credit information companies like Cibil (Credit Information Bureau) and Experian – is a record of loans you may have borrowed in the past. It is an indicator of whether you have been a good borrower – that is, if you have been regular in repaying your loans – and is one of the factors that banks take into account while sanctioning a loan. Therefore, it would be a good idea to regularly monitor your credit history. If that is not possible, ensure that you obtain your credit re-port before approaching a bank for a loan.

Importance of A No-Due Certificate:

One of the most common pieces of advice doled out to borrowers, especially to those who close their loans under a compromise settlement with lenders, is to insist on a no-due certificate. It holds the key to the approval of your loan applications in the future. While the settlement may spare you reminder or follow-up calls from bank, it is only the no-dues certificate that will back your claim of having a clean slate.


   Along with this, make sure your bank gives you an assurance that the settlement will be intimated to the credit information companies so that your credit record is updated accordingly. If, anytime in the future, your loan request is turned down because of an unfavourable credit history, you can pro-duce the documents as proofs of complete repayment

 

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.

Mutual Fund Review: SBI Bluechip Fund

Given SBI Bluechip Fund's past performance and shrinking asset base, the fund has neither been able to hold back its investors nor enthuse new ones   LAUNCHED at the peak of the bull-run in January 2006, SBI Bluechip was able to attract many investors given the fact that it hails from the well-known fund house. However, the fund so far has not been able to live up to the expectation of investors. This was quite evident by its shrinking asset under management. The scheme is today left with only a third of its original asset size of Rs 3,000 crore. PERFORMANCE: The fund has plunged in ET Quarterly MF rating as well. From its earlier spot in the silver category in June 2009 quarter, the fund now stands in the last cadre, Lead.    Benchmarked to the BSE 100, the fund has outperformed neither the benchmark nor the major market indices including the Sensex and the Nifty. In its first year, the fund posted 17% return, which appears meager when compared with the 40% gain in the BSE 1...

Principal Emerging Bluechip

In its near ten year history, this fund has managed to consistently beat its benchmark by huge margins The primary aim of Principal Emerging Bluechip fund is to achieve long term capital appreciation by investing in equity and related instruments of mid and small-cap companies. In its near ten year history, this fund has managed to consistently beat its benchmark by huge margins. This fund defined the mid-cap universe as stocks with the market capitalisation that falls within the range of the Nifty Midcap Index. But, it can pick stocks from outside this index and also into IPOs where the market capitalisation falls into this range. Principal Emerging Bluechip fund's portfolio is well diversified in up to 70 stocks, which has aided in its performance over different market cycles. On analysing its portfolio, the investments are in quality companies that meet its investment criteria with a growth-style approach. Not a very big-sized fund, it has all the necessary traits to invest with...

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now