That is the extent to which one could withdraw cash using a credit card. But the googly is the interest rates. It’s actually a very expensive proposition to withdraw cash as the interest rates on such withdrawals fall in the range of 40% on an annual basis.
And since this interest is compounded monthly, the effective annual rate of interest tends to be anywhere from 38 to 40% per annum.
Essentially, credit card companies charge the same interest rates for cash withdrawals made through credit cards and for rolling over credit card balances.
But if one pays the entire amount on due date, one gets around 30-45 days of interest free credit.
But what is important to know is that rule doesn’t apply in case of cash withdrawals; the credit card company levies the interest rate the moment you withdraw the cash.
That will be added along with the interest rate to your bill. Therefore, unless you have emergency needs, do not withdraw cash on your credit card.
The better option though is to go for a personal loan.
Says RL Prasad, general manager and head of cards and personal loans at Standard Chartered Bank, “You should look at this option as the last resort. If it’s a planned expenditure and you don’t have sufficient liquidity then a personal loan is be a viable option.”
Credit card cash withdrawals vs personal loan
Personal loan is a better option as the average interest rate on personal loans is between 15-20% per annum. The only handicap however, is that it takes around 7-10 working days for the banks to process personal loans.
So if you purchase anything on February 28 or later, that payment would be due only on April 15. So you get some time to cough up that money to pay off the dues.
If you are unable to pay the outstanding amount, then the credit card company charges a month rate of 2.95% of the total amount. But this breather doesn’t exist on these cash withdrawals.
Tuesday, March 11, 2008
Think before you swipe credit card for cash
Monday, February 11, 2008
Do-it-Yourself Debt Reduction
With a little dedication and prior planning, it is possible to reduce your debts on your own. Why pay debt counselors and consolidation agencies fees for things you can do yourself? Credit.com shows you the tricks of the trade and the fastest way to reduce your debts on your own.
Step 1: Evaluate your debts
Collect all your financial documents and print out your credit reports to see exactly where you stand. This is an important step toward debt recovery and one that people are often scared to take. On a piece of paper, write down the balances, interest rates, and monthly amount due for each of your debts. Include your auto loans, personal loans, payday loans, credit cards, and other debts. You should also make note of any annual fees on your credit cards. You don't need to include your mortgage loan or student loans at this time. These loans have relatively long terms and low APRs so it is better to focus on paying off your other debts first. If you have an overwhelming amount of debt, you may want to request a free professional debt help consultation.
Step 2: Look at your budget
After you have collected the information about your debts, you should take a look at your monthly budget. Write down your monthly income after taxes and subtract your rent/mortgage payment from this amount and other monthly expenses such as childcare, student loan payments, insurance, utilities, and groceries. Once you have subtracted all of your expenses, calculate how much you have left to pay off your debts. If this amount is too small, look for ways to reduce your spending. Consider turning off your cable subscription or carpooling as ways to cut back temporarily. The more you can pay towards your debts each month, the sooner you will be debt free.
Step 3: Make a plan
Now that you know all about your financial situation, it's time to create a plan for reducing your debts. Use your information from Step 1 and 2 to fill in the following chart. Subtract your minimum debt payments (Step 1) and monthly expenses (Step 2) from your monthly income after taxes. The remaining amount should be used to pay off the debt with the highest interest rate and the highest balance.
| Example | Your Plan | |
| Monthly income after taxes | $2,800 | $ |
| Minimum debt payments (1) | - $1,800 | - $ |
| Monthly expenses (2) | - $400 | - $ |
| Remaining amount goes to the debt with the highest rate and balance | = $600 | = $ |
Continue this cycle each month until the debt is paid off and then move on to the next highest rate/balance account. This may seem like an odd process, but it is the fastest way to reduce your debts. During this time, you should not add any new charges to your credit cards. Also, try to increase the amount you pay toward the most expensive debt each month. Track your progress with a chart like this:
| Month 1 | Month 2 | Month 3 | Month 4 | Month 5 | Month 6 | |
| Payment Goal | $600 | $600 | $625 | $625 | $650 | $650 |
| Actual Payment | $625 |
Step 4: Start negotiations
While you are starting to follow your repayment plan from Step 3, you should contact your creditors and lenders to see if you can improve the terms on your debts. You may be able to lower your interest rates or negotiate a reduced settlement on some debts by speaking with the customer service department. It is especially easy to negotiate the terms of debts that are charged off (dismissed) by the creditor or in collections already. Also think about moving some of your credit card debts to new accounts with lower interest rates. Moving a balance to a credit card with a 0% introductory rate for 6-12 months can help you save a lot on interest. Just be sure to keep each of your credit card balances below 35% of the credit limits to avoid damaging your credit score. During this time, investigate if consolidating your debts into a personal loan or home equity loan could help too.
Step 5: Follow-through
Do your best to meet your payment goals each month. It's okay if the amount you put toward your most expensive debt each month varies. Just try to consistently put as much as possible toward your debts. Signing up for an automated payment system and keeping a chart of your progress on the refrigerator can help you stay on track. When you reach major milestones, be sure to celebrate your success. Before you know it, you'll be debt free!
Five Steps for Improving Your Credit Rating
Blemishes on your credit report can cost you, but don't despair. It's never too late to become credit worthy. You just need to get started, using our five steps for improving your credit rating, and remember that results won't happen overnight.
1. Order you credit reports
Find out what the top three credit bureaus (Equifax, TransUnion and Experian) are saying about you. And remember that your information on file is likely to be at least slightly different at each one. Since credit reporting is voluntary, creditors aren't required to report to all three bureaus, but most large national lenders do. However, smaller lenders will typically report only to the one to which they also subscribe for pulling reports. Therefore, it is preferable to order a three-bureau, merged credit report or all three individually from www.annualcreditreport.com. Credit reports should be reviewed at least twice a year for accuracy.
If you've been denied credit, insurance or employment because of your credit report, you are entitled to a free copy of your report from the reporting agency the lender/insurance company used. The company you applied to must supply the credit bureau's name, address and telephone number. You have 60 days after receiving the denial notice to request your copy.
2. Examine your reports carefully
Nearly one-third of credit reports contain serious errors that could cause consumers to be denied access to mortgages, car loans and credit cards. That's because credit bureaus don't verify the information they receive from your creditors. Like it or not, keeping your credit report clean and true is your job. Once you get your three reports, look carefully for everything from typing errors to outdated and incomplete information. Make a thorough list of items you dispute and why.
If the negative information in your report is true, only time and improved habits can change that for the better. Late payments and charged-off accounts remain on your report for seven years, bankruptcies for 10 years. Most creditors, however, look for a steady pattern of payments rather than focusing on one-time or rare occurrences, so consistent on-time bill payments will improve those blemishes.
3. Dispute and document
Since a bad report can cost you money, it pays to be thorough. You can either complete the dispute form provided with your credit report or write a letter. Clearly identify each mistake and state why it's wrong. One recommendation is to send a photocopy of your credit report with the mistakes circled to the reporting credit bureau with copies of your supporting documents.
Keep copies and records of all the forms, letters and documentation that you send the credit bureaus, plus dates sent. In short, document, document, document. The credit bureau must investigate any relevant dispute within 30 days of receiving your letter. Any item that is not verified as accurate by a creditor is removed. If the credit bureau makes any changes to your credit file, it will send you the results along with a free, updated copy of your credit report. Once a negative item is removed from your report, the credit bureau cannot put it back on unless a creditor verifies its accuracy and completeness after the fact -- and sends you written notice.
4. Dissolve your debt
The next task is to devise a spending plan that reduces your debt and allows you to pay on time, all the time. If you're having difficulty making payments, be proactive. Call your creditors and negotiate with them to keep your accounts current and not be reported as delinquent or "bad debt." You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills. The same strategy can be used for fixed-loan payments, but it should only be used for the short-term. You'll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.
Slowly phase out the use of unneeded credit card accounts. But remember to NOT CLOSE THE ACCOUNT. Simply stop using it and pay it off. If you make the very common mistake of closing accounts you will almost certainly negatively impact your credit scores, which strongly considers the ratio of total credit card debt to total available credit or credit limits. A good rule of thumb is to keep your revolving credit card debt to less than 10 percent of your available credit. However, it’s optimal if you keep your balances low so you can avoid revolving balances. This will save you the interest charges
5. Add stability to your credit file
You can also work to add positive information to your credit file. You may have been denied credit because of an insufficient credit file, even though you do have credit. That's because some creditors (local banks, credit unions, and travel, entertainment and gasoline card companies) may not report your credit history to the bureaus. Try asking the credit grantors to report your account information and monthly payment history to a credit-reporting agency. This is not a requirement and you will not be able to force them to do so. In the future, before opening a new account, ask if your on-time payments will be reported monthly to all three credit-reporting agencies. If the answer is “no” then think about using another lender who will.
If you have really bad credit or even filed for bankruptcy, don't let your credit status go dormant. The faster you jump back in and begin to re-establish good credit by paying regularly on time, the faster you'll improve your credit scores. A secured credit card offers those with no credit and those rebuilding their credit an opportunity to start over and establish a new and solid credit history. Shop around for the best deal available, but limit your applications. Credit scoring models look at how many new accounts you've opened, as well as the number of "inquiries" for those new accounts. A sudden flurry of inquiries can result in a lower score.
Sunday, February 10, 2008
Credit Card Safety Measures
1. Surprisingly, the most common place where credit cards are skimmed (that is: their details are duplicated in order to make further copies of your card) are restaurants, coffee shops, cafés etc. Criminal syndicates employ ' runners ', usually restaurant staff, to skim these cards and these runners are paid for their efforts.
The prime reason why card skimming occurs at these venues is that very often your card has to leave your sight so that the waitron can process your bill at the credit card terminal while you wait at your table. It is during these few minutes that the skimming occurs.
A way of ensuring that this does not happen is to accompany your card and the waitron to the credit card terminal, where you yourself can supervise the transaction and safely retain your card.
Do not be embarrassed to do this, remember this is your money after all and escorting your card to the terminal is a small price to pay compared to the financial trauma you will experience after your card is duplicated.
2. All retail outfits employ a ' floor limit ' for your credit card. Floor limits vary from store to store. Depending on the status of your card and the store in question, these limits can vary from R 5000.00 to greater amounts. Any amount over that limit will result in the retailer having to gain authorisation for the transaction from the relevant card division.
When criminals steal your card, they are very careful to make illegal purchases within these floor limits and thereby not draw attention to themselves. The goods that they buy using your card are thereafter sold to fences and even ordinary people, resulting in a one hundred percent profit for the criminal.
One way of ensuring that you are never a victim of this practice, is obviously to safeguard your card in such a manner so that it remains very difficult for it to be stolen.
Secondly, one should always be vigilant and check that your cards are always safe and in your possession.
Thirdly, in the event that your card is stolen please report the theft to the relevant card division immediately. All the credit card providers provide 24-hour customer helplines where your card can be immediately blacklisted and criminals are thus unable to make use of your credit facilities. Failure to report the theft of your card timeously can result in the cardholder being financially liable for any transactions effected by the criminal. Remember that criminals can only profit from these kinds of practices by selling these illegally obtained goods.
Ordinary individuals such as you and many others should therefore make a determined effort to only buy goods through channels that are legal and above board. No matter how attractive the prices may seem or how persuasive the seller of these goods, please retain your sense of morality by realising that these goods are tainted.In a very significant sense, by being party to such illegal transactions the ordinary individual is actually contributing to criminal activity.
3. Crooked employees of the companies that process credit card transactions telephonically commit another manner of using your card details illegally. When you do call in to make a credit card purchase over the phone, the crooked employee records your details not only for the company in question, but for also for himself/herself and their criminal cronies.
Later, when receiving your statement you discover that there have been numerous other purchases credited to your card at stores or companies that effect telephonic credit card transactions. A sure way of putting a halt to such illegal purchases is to NEVER attempt credit card transactions over the phone.
Credit cards, however, are designed to make our lives far more convenient and if you absolutely HAVE to make purchases over the phone ensure that you are dealing with a highly respected and legitimate company.
4. The Internet is another hotbed of illegal credit card activity. Certain unscrupulous agents ' hijack ' the payment pages of certain websites and the electronic ' money ' from your transaction is diverted to the criminal's account.
Most websites employ highly detailed and sophisticated encryption measures that ensure that their pages can neither be hijacked nor hacked by criminal agencies. You can determine the safety of your online transaction by checking to see whether the secure icon (a little padlock) is visible at the bottom right hand corner of the webpage. The website in question will also inform you via a pop up window that you are now entering a secure page.
Is Your Credit Card Safe?
It’s as safe to use your credit card online, as it is otherwise, but take a few precautions
Let’s skip the introduction and go straight to the question—Is it safe to use your credit card number online?
Credit card fraud is not limited to the online world. It’s existed for as long as credit cards have been around, and it’ll exist for as long as credit cards do, in their current form. So, our question should be—Is it more dangerous to use a credit card online?
Available evidence says it isn’t. Or if there’s evidence to the contrary, card issuers are not yet talking about it. After all, bankers are a secretive lot.
There’s no reason for us not to use credit cards online, provided we take a few steps to ensure the security of our transaction. All that’s needed online is the credit card number and date of birth. The online vendor needs neither your signature nor physical access to the card. Your date of birth could generally be known. So, you need to be doubly careful to ensure that your credit card number doesn’t fall into the hands of unscrupulous elements.
Credit card details could potentially be stolen from you, your computer, or from vendors with whom you’ve used the credit card. Let’s take these one by one.
Don’t let your credit card lie around so that someone can pick up the number. Also, don’t give the number out to anyone other than a vendor.
Don’t put your credit card details in e-mail or generally store it in documents on your computer, particularly if it’s a shared or an office machine.
While entering your credit card number at an online store, ensure that you do so only on a secure page. If you’re asking for clarifications or help from the sites, you don’t have to give them your credit card number. If they ask for it, there’s something fishy. Stop all transactions at the site immediately and inform the Webmaster. Don’t enter your credit card number or date of birth as part of the information you give while registering at any site.
Online, the third instance—of the numbers being stolen from the vendor— could happen if someone hacks into an e-commerce server. Frankly speaking, you have no control over this, except hoping that the vendor takes enough care to ensure that his servers are not open to hackers.
The law is not very clear on your liability if someone uses your credit card fraudulently online. But check out with the bank that issued your credit card on their policies and guidelines for the same.
During our reviews in this issue, we were using my Citibank credit card to make purchases online. About half-way through, Citibank called me up to inform that these flurry of transactions were happening on my card and wanted to ensure that they were legitimate.
We called up Standard Chartered’s helpline and asked about the remedies available to a credit card holder in case of any misuse of the card online. Their answer was the card holder can complain about the transaction, but there was no way that the bank could stop the transaction. In fact, they went as far to state that they discourage the use of credit cards online.
The Amex helpline, when contacted said that in case someone else uses the card details online, then the card holder is liable to pay up.
