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The Economic Times Wealth, January 17, 2011

Credit Cards

Of 66 cards & `7.5 lakh reward


Three cardholdhers narrate their experiences with plastic and the benefits they derive from its use

SHOME BASU

Arunabha Basu, 56, Delhi


A frequent flyer, he uses his six credit cards extensively and get a lot of benefits and offers. He also uses his credit cards during his frequent foreign tours because he finds them more convenient than using travellers cheques or getting currencies exchanged.

There is a misconception that the credit card bill shoots up on overseas expenses. It remains more or less equal to what one would otherwise shell out.

Satinder Sikri, 35, Delhi


Almost all his expenses are made through the 10 credit cards he holds. He also used his credit card to get a personal loan to make up the shortfall in the downpayment for a commercial property. In the past seven years, he has accumulated a lot of reward points. He is careful when it comes to redeeming his reward points. So far, he has bought a dining table, a dinner set and other items of household utility with his points.

ost people carry their credit cards in their wallets. But if Chandigarh-based Manmohan Garg were to carry all his cards, he would need a bag. He has 66 credit cards from at least one dozen issuers. The CEO of Gurukul Vidyapeeth College doesn't believe in cash. Why should he, when his cards offer him a combined credit limit of `40 lakh. Garg uses his cards extensively for his business expenses. At any given time, he has almost `20 lakh of business expenses charged to his credit cards, which gives him easy access to precious working capital at virtually no cost. Whats more, he earns close to `7.5 lakh a year in reward points. Managing the payment schedule of his credit cards is not a mean task. Garg has an accountant who looks after the payments. More importantly, he keeps an eye on the billing cycles and advises Garg on which cards have to be used to get the maximum interest-free credit. In the past 10 years, Garg has rarely missed a payment. Once the statement didnt reach me and the payment got delayed. But the company looked at my good repayment record and waived the late payment penalty and the interest charge, he says. Another time, he was faced with a cash crunch and approached HSBC for a loan. They looked at my record and offered me a loan of `7 lakh even though my Viney Sharma credit limit was `1 lakh.

MANMOHAN GARG, 42
CEO, Gurukul Vidyapeeth College, Chandigarh Number of cards: 66 Combined credit limit: `40 lakh Annual usage: `1.5 crore Cash back and other offers:

`7.5 lakh a year


Reward points earned: 10,000

per month
Redeemed for: Jewellery,

perfumes and gift items

I got a personal loan at 11% against my credit card limit without any documentation. If I had taken a bank loan, it would have cost me higher.
SHOME BASU

steps to be free from credit card debt trap


While your credit card is a useful tool in several ways, it is also an easy way to fall into a debt trap. Easy because swiping a card costs nothing and paying the minimum 5% of the bill seems manageable. But if you roll over the balance on your credit card bill for more than 2-3 months in a row, its a sign that you are in a debt trap. Here is a four-step strategy to get you out of the situation. you spend. If you dont like carrying cash around, use a debit card. But just dont use the credit card till you are out of the debt trap.

3. Liquidate assets:
You could also consider redeeming some investments. Even if an investment is earning you 10-12% in a year, it will be more beneficial to liquidate it and use the money to eliminate debt that costs you 2-4% per month.

2. Convert bill into EMIs:


Call up your bank and tell them that you are finding it difficult to repay the amount and that it should be converted into EMIs. The interest rate is lower at 14-16% than the 36-42% payable on rolling over the balance. Banks are usually willing to do this because they see a better chance of recovering their dues. Some offer this facility even before the customer asks for it.

4. Start with the costliest:


If you have three of four credit cards and each charges a different rate of interest on rollover, start repaying the card with the highest interest. This way, the rollover cost will progressively get reduced.

1. Freeze your spending:


The first thing to do is stop spending on the card. Use cash instead, which will force you to think twice before