Credit card users need to be vigilant and keep themselves thoroughly informed

Take stock of the range of transactions you may need a credit card for - whether it will be used to pay for routine expenses or kept aside for high-value purchases, travel or medical emergencies.

No wallet is full today without a credit card in it. The use of plastic money makes routine life easier, helps during crises, while adding frills to your lifestyle.
Since the UAE economy bounced sprang back, particularly from 2014 onwards, the use of financial cards has risen substantially. Rebounding consumer sentiment, low borrowing costs and greater influx of expatriates due to Expo 2020 is likely to generate a 10 per cent growth of the financial card sector, according to estimates made by various banks.
At the individual level, however, credit cards can be a bewildering experience, especially with myriad options at hand. Users need to be vigilant and keep themselves thoroughly informed about benefits, the costs of availing its many advantages and most importantly, the discipline required to avoid debt.
Asking the right questions and making an informed choice is key for both new and experienced credit card users. A certain level of vigilance is required to select and maintain a credit card in order to ensure the user can maximise its benefits without paying an exorbitant financial or psychological price.
Four distinct areas must be examined by all users before choosing a card: need for a new credit card, making a trade-off between various fees and interest/profit rates, relevant rewards and benefits and penalties for failing to make timely payments.
Need for credit
Take stock of the range of transactions you may need a credit card for - whether it will be used to pay for routine expenses or kept aside for high-value purchases, travel or medical emergencies. Heavy users must have the financial discipline to pay off the card every month without fail, so they remain largely unaffected by profit rates and penalties.
However, if you intend to make frequent use of your card, but your work schedule and financial burden do not permit regular pay-offs, then it is essential to set time aside to study all the options - whether you should go for a balance transfer credit card that helps consolidate all debts into one or a low-profit rate credit card to ease the pressure.
Profit rates and fees
A wide assortment of credit cards are currently available in the market, each presenting a range of annual fees and profit rates. It may seem a no-brainer to go for the lowest profit rates, but it is not always that simple. There is a trade-off to be made between annual fees, profit rates and benefits on offer.
Profit rates or annual percentage rate (APR) can either be a fixed rate or a variable rate. However, even a card with a fixed profit rate can vary with time, so users must remain conscious of changes.
In the UAE, annual fees may be waived for life or could range between Dh400 to Dh1,500 per year, depending on the benefits offered. Profit rates also vary from 1.66 per cent to as high as 3.25 per cent. For instance, Noor Bank's award winning product, the 'Best Rate Credit Card', delivers one of the lowest profit rates in the region at 1.66 per cent per month. Individuals can also opt to transfer outstanding balances from credit cards issued by other banks in the UAE.
Rewards and incentives
Card issuers offer reward programmes and incentives to their customers to encourage frequent card usage. This could include anything from 10 per cent cash back on supermarket purchases, utility bills and school fees to 50 per cent discounts in cinemas, restaurants and retail outlets. Other incentives include complimentary travel insurance, airport lounge facilities, discounts on air tickets and holiday packages. Some cards offer cash back of up to Dh12,000 per year, including bonus of up to 10 per cent on duty-free and weekend spends.
Other benefits include 'credit shield' facilities under which issuers can clear the outstanding balance on a card following an unforeseen event, such as death or permanent disability. It may also protect you against loss of employment, or provide cash benefits during illness. Consumers can be charged from 0.5 per cent to 1.09 per cent for such services.
Given the various choices, users must be conscious and choose a card offering benefits that suit their interests and lifestyles. They should be wary of misleading terms that could result in unnecessary expenses.
Penalties
Although credit cards are incredibly useful they must never be considered a source of supplementary income. The downsides and penalties of not maintaining fiscal discipline can be steep. Card companies start charging if you take time to pay them back and this profit rate can be unpredictable.
The UAE Central Bank has placed safeguards to prevent residents from accumulating heavy debt, which affected thousands of residents during the recession. As per Central Bank rules, residents can borrow only up to 20 times their salary and repayments must not exceed 50 per cent of their monthly income.
Credit cards are complex products with varying profit rates, fees and reward programs and penalties. So before filling out an application, it is important to know which option will best suit your financial situation.
It is always advisable to consult a professional and read the fine print to fully understand the terms and conditions of a card before having it issued.
The writer is the business head of Consumer Finance at Noor Bank. Views expressed by him are his own and do not reflect the newspaper's policy.