Too many credit cards spoil the budget

DUBAI - A majority of salaried middle-class expatriates who use more than one card enter a vicious circle of minimum payments.

By Zaigham Ali Mirza And Prerna Suri

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Published: Sat 8 May 2004, 10:07 AM

Last updated: Thu 2 Apr 2015, 2:24 PM

A personal bank loan to cover for all the credit card payments, then, is not far away.

When it comes to credit cards, a majority of salaried middle-class expatriates in the UAE have the same story to tell. More often than not, members of this particular section of the community have more than one credit card, made available with minimum formalities and effort and used to the full limit within twelve months.

What follows is no surprise. Procurement of additional credit card(s) from other banks, which also meet the same fate within months, and the holders are entered into the vicious circle of minimum payments eating into their salaries and creating chaotic financial conditions. A personal bank loan to cover for all the credit card payments, then, is not far away.

Khaleej Times spoke to several expatriates on the issue to find out where they think the problem lies, and how it can be tackled. The respondents do not necessarily represent the section of the expatriate community being discussed in the report.

Ameer Saleh, a marketing professional, is perhaps the odd man out. "I do not believe in spending my money before I have earned it, and have it in my hands. I have been here for almost five years now but have never applied for a credit card. Nor will I ever," he says.

His philosophy is simple, live with what you have. And it seems to have worked for him so far. "I have seen my friends suffering because they could not control the urge to spend. There have been tines when I had serious financial problems on my hands, and was almost convinced that a credit card was the only way out," he says, adding that he somehow persisted and is happy with the way it has worked for him.

Banks, too for their part are luring customers with greater incentives which they offer along with their credit cards. Mobile phones, free family insurance, complimentary booking of airline tickets and offering supplementary cards are just some of the ways through which certain banks are attracting their customers and getting an upper hand over their competition. Many are, however of the opinion, that credit card users fall into the debt trap by failing to read the fine print before signing that all too important contract.

"Hidden charges, higher interest rates and high premiums are just some of the things customers have to be wary of before deciding to go in for a credit card," disclosed Sneha Ramchandani, a credit cards supervisor at one of Dubai's leading banks.

Sunil Grover believes credit cards are a great convenience if used in an appropriate manner, but agrees that plastic money is a double-edged sword. "Credit cards are used best for travel and for situations where money is unexpectedly needed," he says, adding that in the local context credit cards lend flexibility to the domestic budget.

He points out that there is no alternate to credit cards, considering the economical condition of a large section of the expatriate community. "Many of those who go for credit cards do so out of need rather than fancy to slightly stretch their monthly budget, but at the same time credit cards also considered as a status symbol," he opines.

According to Mr. Grover, the bottom line is for the credit card holder to know his limitations and the basic knowledge of how plastic money can be utilised to its full potential without causing financial worries.

Credit card sales and marketing is Zainulabideen Sajid's bread and butter, and he himself holds some five different cards. "I have never paid interest on my cards, not once. It is all about money management and discipline, you have to know how not to go overboard and still take care of your financial commitments," he explains.

He admits he knows how a sizeable number of credit card holders end up in the vicious circle of minimum payments on a completely used out card, followed by another card and eventually a bank loan to take care of it all."It is a matter of choice, and I have no qualms about selling a product which offers so much convenience, not only in terms of credit but also several other benefits that many cards offer to their customers. I have five cards myself, so am selling a product I use extensively myself" he says.

Mr. Sajid is fiercely defensive when it comes to the credibility of banks that provide credit cards. "There is no question of ethics, the customers are aware of the whole system and the benefits that come with a credit card. Anything that is abused is unhealthy, so why should credit cards be an exception," he says.

Neeraj Bhatia, a financial broker, agreed that customers who do not pay their credit card bills on time are the ones who fall into the credit card trap. "Banks who sell credit cards thrive on customers who fail to make their payments on time. The banks will deduct a certain amount of money from the customers’ accounts, which in the long run turns out to be very expensive. So, to clear your debts you would have to not only pay your credit card bill but also the resulting late payment which may be exorbitantly charged by the banks."

Some banks when contacted by this paper conceded that they did handle a number of cases whereby the customers could not pay off their debts due to a variety of reasons - which could range from forgetting to pay the bill to not being in a position to pay off their bills due to overspending. " Consumers have to realise that credit cards are but another option of payment and that they are ultimately a loan which they are taking from the banks, which they have to pay off. They should be wary of spending over their credit limit as we do charge interest for every transaction," said a bank manager.

The problem says Adolph Dias, a businessman, lies in the fact that a buyer does not feel the pinch when he uses a credit card for a purchase and as such it becomes easier to spend. "When you use cash, the pinch is felt then and there, so you think twice about spending. But if you do, the chapter is closed immediately," he says.

Using credit cards with the minimum payment method in mind, which essentially extends the credit facility, is like postponing one's problems. And these problems have to be faced eventually one day, perhaps in the form of a financial crisis, Mr. Dias says.

He does not believe that the society would be happier without credit cards. "It is a part of the technology that is making things more and more convenient for people, but like everything plastic money also has a good and a bad side. But it all depends on how credit cards are put to use; I agree there are temptations at every nook and corner, but one shouldn't fall prey to them," he asserts.

Different banks have different procedures through which they ensure that customers pay up on time. " It is our policy to give our customers a grace period of about 5-6 days and if he fails to pay his first payment on time, we deduct Dh75 from his account. If he is still unable to pay off his debt after a period of two months, we then investigate his case and try to ascertain the reasons as to why he cannot come up with the money. In extreme cases, we may even take legal action against the person and take him to a court of law," said Manisha.B., a recovery officer at a Dubai based bank.

American Express, in its website, is clear-cut in its policy regarding those people who default their payments. "We will not charge any interest on any transaction including Cash Withdrawals if the customer pays the whole due amount within 26 days of the statement date. If he fails to pay the full amount within 26 days, an interest will be charged on the due amount from the statement date until the whole amount is paid." In addition to this, a late payment fees amounting to $10 will be charged if the customer fails to pay the minimum payment within 26 days of the date of the statement.

Mr. Dias feels that multiple credit cards are fine, since each credit card provides different kinds of benefits and facilities, such as air travel insurance and discounts at outlets selling certain brands or products.

He adds that not deferring credit card payments is the one way to ensure peace of mind.

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