Credit card addict? Switch over to cash

PERSONAL FINANCE

Puneet Lakhotia signed up for an ICICI Bank credit card to book tickets online. His problem: None of the ticketing websites accepted his regular bank’s net-banking facility.

But instead of only booking tickets online, the 27-year-old bank employee started splurging. Within a year, he was in a debt trap. “Due to the convenience it offered, I used the credit card to pay bills and shop online for books, movies, music CDs and even bought a cell phone,” says Lakhotia. Having learnt the hard way, he has surrendered his credit card and keeps ItzCash, a pre-paid card for online transactions. 

TOP FIVE EXPENSES

Travel and related activity, including tickets and hotel bookings

Fuel refilling

Consumer durables

Apparel and garments

Jewellery

Credit card for convenience is a very common excuse. Many pay their restaurant and hotel bills because using a debit card involves punching the four-digit identification number. There are other advantages like cash-back benefits or points that attract more expenses.

According to the data compiled by ICICI Bank, the country’s largest private sector bank, the top five expenses that consumers make through credit cards include travel and related activity (including tickets and hotel bookings), fuel refilling, consumer durables, apparel and garments and jewellery. Payment of utility bills is another area that is fast catching up.

“Around 8-12 per cent of business comes from the top five areas. At least, 10 per cent of card-holders pay at least one of their utility bills every month through cards,” said a banker from a private sector bank.

However, just to make a few expenses, consumers always start over-spending. For those, who cannot control the urge to splurge, using an alternative-payment mechanism is a better idea.

For instance, for buying tickets online, it is better to use pre-paid cards. Three – such cards are currently available in the market — Itzcash, OxiCash and Done Cards.

These cards can be used for a host of other purchases as well. These include online shopping, insurance purchases, mobile recharge and many others.

Like credit cards, these cash cards come at a cost as well, but only for a few transactions like railway bookings and bill payments for public sector utilities. This is because government-owned companies do not give any commission to cash card companies. “The charges are either a maximum of Rs 15 or 1.5 per cent of the value of these transactions, whichever is higher,” said Naveen Surya, managing director, Itzcash.

When it comes to petrol bill payments, credit card companies give bonus points and a waiver of fuel surcharge of 2.5 per cent.

Substituting them with pre-paid cards from oil companies would mean the same thing. All the three major oil companies have their own branded cards. For instance, Bharat Petroleum has a Petro Card and Hindustan Petroleum has HP-Smart 1. None of these cards attracts a surcharge and offers similar loyalty bonuses.

For apparel and consumer durables enthusiasts, most retailers on Thursday have loyalty programmes that give discounts for cash purchases. For persons, who cannot handle credit cards, it is best that they go for options that require the use of more cash. It saves them the trouble as well as a high interest payout.