Credit Cards- Use with Care

Credit card is one of the most important financial inventions in modern times. However, this much-sought after boon can be a real bane to your finances if not used with care. Here are a few instances when you should restrict the use of credit cards in order to keep your finances in order.

Using credit cards for everyday expenses: This is one of the most common instances when people use credit cards – to buy their day to day items. While using credit cards to purchase groceries and household items is not always bad, using it regularly may result in your overspending and crossing your monthly budget. Always draw up your budget for such purchases and use your credit cards within this limit. Beyond this, it is better to use cash or debit cards.

Using credit cards for cash advances: Drawing money from an ATM through your credit card to meet emergencies is an easy way to combat cash shortage; but have you realised the impact it will cause on your finances? Not only is the interest rate charged on the advanced amount exorbitant at 2.5%-3.5% per month, but this also gets charged from day one itself. Besides you will also have to pay a flat transaction charge as well.

During the months you have restricted cash inflows: Credit cards come with a free credit period of 20-50 days. If you do not pay your bills within the due date, you will be charged a hefty late payment fee, high interest of 2.5%-3.5% per month and also taxes on these charges. Hence if you think you will not be able to generate cash flows to make payment on your credit card within the due date, it is best to refrain from using it.

Using credit cards when you travel abroad: When you use your credit card for transactions in a foreign country, you are usually required to pay a charge on foreign currency transactions. Also, do not forget the exchange rate fluctuations, which determine the amount you will have to pay. If you instead opt for a prepaid currency card, it will help you better.

Using credit cards when you travel abroad: When you use your credit card for transactions in a foreign country, you are usually required to pay a charge on foreign currency transactions. Also, do not forget the exchange rate fluctuations, which determine the amount you will have to pay. If you instead opt for a prepaid currency card, it will help you better.

Using credit cards only to accumulate reward points: In order to attract customers, credit card companies offer various offers and high reward points on purchases made. While accumulating reward points is good, spending on your card only for this reason is not very healthy. You will soon realise that even though you have high reward points on your card, you will have to pay hefty bills, sometimes even on unnecessary purchases made without forethought.

When you shop at unsecured websites: Online shopping has off late become very popular. While it is a convenient way of shopping, you must refrain from using your credit card and sharing confidential information on websites which are not secure. Always check for security levels before making credit card payments in such cases.

When you cross your credit limit: It is best to stop using your credit card when you are close to your credit limit. This is not only good for your credit score, but also helps you keep a check on your expenses levels.

When you see a discount sale: Do not use your credit card indiscriminately as soon as you see a discount sale. This is a sure shot way of you exceeding your budget and spending more than you can afford. Be prudent when you use your credit card in such situations and purchase only what you really want. When you use your card for unaffordable purchases, you will soon end up in a debt spiral, which affects your financial position gravely.

When you have multiple cards: When you have many credit cards, keep a note of the billing cycle and due dates of each card. Do not use the card which is closer to the billing date; instead use a card which has a farther off billing date. This will give you a higher credit period and makes more sense to your finances.

A credit card is not always the best option to spend. Nevertheless, it can work wonders to ease your financial situation, if used smartly, with care and discipline.

Zero percent finance is a bogus

These schemes do tend to have a big influence if you are someone looking to buy something, which otherwise would be well beyond your reach! You buy their theory of ‘zero percent finance’ and pay installments which you strongly believe are interest free! But unfortunately you end up paying more than what you actually think you are

There is a popular saying: “There is no such thing as a free lunch!” And Ramesh now fully endorses it! But not long before he completely disagreed on this thanks to the zero percent finance schemes offered by some NBFCs (non banking finance companies) with which he had bought a couple of consumer durables for his home! He blindly believed that the zero percent finance schemes were in fact zero percent in reality until the time one of his wise friends enlightened him on how these schemes really work! Well, this is what he found out

What are they?

Till a few years ago there were many such zero percent finance schemes doing the rounds and luring the unaware buyers like Ramesh into it! Thanks to the regulations of the Reserve Bank of India (RBI) many banks have now stopped offering such schemes for financing consumer durables but still there are several NBFCs who continue to offer these so-called zero percent finance schemes! Hence the recent announcement by RBI which banned zero percent interest loans on EMIs to credit card holders, stressing on the removal of this practice

These schemes do tend to have a big influence if you are someone looking to buy something, which otherwise would be well beyond your reach! You buy their theory of ‘zero percent finance’ and pay installments which you strongly believe are interest free! But unfortunately you end up paying more than what you actually think you are

How do these schemes work?

Firstly these zero percent schemes have hidden costs inbuilt in them. Perhaps the biggest loss for you would be forfeiting the cash discount on a product that you could have otherwise got if you had bought it on full cash. This apart you will also be paying a transaction or processing fee under the zero percent scheme and consequently more money through advance EMIs.

For example, you decide to buy an LCD colour television that costs around Rs. 48,000. You decide to buy it using the zero percent finance scheme. Under this arrangement you will pay the entire cost in six EMIs of Rs. 8,000 for six months. This works out to be Rs. 48,000 spread over 6 months. Now here’s how you end up paying more! To begin with you pay a processing fee of Rs. 1,000. And since you are buying the LCD on a zero percent finance scheme you are not entitled to the cash discount of Rs. 2,000!

So here’s how it looks in the above example. The LCD costs Rs. 48,000! Add up the Rs. 1,000 processing fee that you pay initially and Rs. 2,000 that was lost out on cash discount. A total of Rs. 3, 000! This means you get a net finance of Rs. 45,000 only! Now you pay an EMI of Rs. 8,000 for 6 months which totals up to Rs. 48,000. So at the end of six months you pay Rs. 3,000 more for what you got.

Are they genuine?

It is an irrefutable fact that the demand for these schemes is highly felt during the festive season. Market experts believe that there is a marked spurt in sales of consumer durables due to these zero percent schemes. The consumers wouldn’t mind opting for these schemes as it is a fact that paying by credit cards is comparatively expensive than purchasing through these schemes. Also, these schemes have minimal paper work, and some friendly eligibility criteria. However, it takes some understanding of the basics to find out if they are genuine or not

How to decide if the scheme is actually zero percent?

It is always better to ask some basic questions to find out if the zero percent schemes are actually zero percent! Find out if you are eligible for any discount if you pay the full amount and if there are any transaction charges for the finance scheme and if the answer is no for both the questions then you might consider yourself lucky that the zero percent schemes is actually zero percent.

Are there any  zero percent schemes at all?

Well there are schemes that could fall in the category of being  zero percent but these are available in a different form! There are some credit cards where if you spend more than Rs. 5000 with it,  might allow you to pay the amount in three EMIs without any interest. However, this would still come with a processing fee of 3-5%.  Unfortunately this is the closest you could get to a true zero per cent scheme!

Save USD reserves & save INR

Credit Cards- Expensive way of borrowing

Indians are cautious by nature. In comparison to the rest of the world, the usage of credit cards by Indians is relatively low. Banks love borrowers who spend on credit cards. This is because they charge anywhere between 3 to 4% per month on the outstanding amount if you fail to pay the ‘total amount due’ in your credit card statement. This is the most expensive way of borrowing.

Jefferies, a UK-based securities firm, observed recently that banks are focusing more on offering cards that charge an annual fee rather than offer them for free.

Five facts about credit cards:

·  Borrowers are cautious and are revolving less money than before. Over the past one year, 53% of outstanding balances are revolved. When borrowers revolve credit, banks earn a higher interest income. This was over 60% a year ago and over 80% in 2009. Total credit card outstanding as of July 2013 was Rs 23,100 crore, according to RBI data.

·  Banks primarily earn interest income on the money they lend. Of the total interest income, credit cards account for less than 1% for most banks. Jefferies observes that HDFC Bank generates 4% interest income from credit cards, the highest among all banks. This means more customers of HDFC Bank are revolving credit and paying a higher interest rate. 

·  Ten banks account for 88% of credit cards issued in India.

·  The four private banks (HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank) put together now constitute roughly 66% of the total credit card outstanding balances in the banking system.

·  When you opt for a 0% equated monthly instalment or EMI option, banks charge a nominal transaction fee. Point of sale terminals, as banks call these mode of payment, have surged 50% over past one year. HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank have an 80% share in this segment, according to Jefferies. 

Pensions Transfer Process for Professionals relocating from UK

What is QROPS?

A QROPS (Qualifying Recognised Overseas Pension Scheme) is a way of moving your UK  pension arrangements to a scheme administered outside the UK, which is more flexible & easily accessible for people who have retired abroad or are planning to do so. 

What is LIC's Jeevan Akshay-V1 scheme?

It is an immediate annuity plan, in which you start receiving pensions as soon as your UK  pensions transferred & LIC's pension policy commences in India. You will receive pensions till your life time. In the event of a mishap, your spouse or other nominated beneficiary will get entire transferred corpus back as tax free lump sum. Or you can choose an Annuity Option that makes provision for life time pensions for your nominated beneficiary on your demise. In addition there are still eight alternative Annuity Options to choose from.

What are the steps involved in the pension transfer?

 

Step1: Mandate to UK Pensioner requesting to dispatch CETV to QROPS Scheme Manager.

Step2 : On receipt of set of forms (CETV) from UK Pensioner, the QROPS Scheme Manager will be returning them duly filled with the required details to UK pensions authorities.

Step 3: UK Pensioner will be transferring the Corpus directly to LIC’s bank Account through Wire Transfer, under intimation to the client.

Step 4: On receiving the Corpus to LIC bank Collection A/c, the bank authorities ask the Scheme Manager  to submit the prescribed Disposal Form giving complete details of the transaction.

Step 5: On Submitting the prescribed Disposal form to the bank, the Forex Department of the bank will convert the Currency at the prevailing Exchange rate as on that day.

Step 6: The receipt for the transferred Corpus after conversion (premium) will be drawn in the Client name from the Accounts Department.

Step 7: Jeevan AkshayV1 Policy will be completed instantaneously, which gives the client unabated guaranteed life time income immediately .

Step 8: Finally the Client will receive a communication from UK Pensioner over post confirming the transfer of UK pensions to LIC’s Jeevan Akshay V1.

Case illustration

Client 1: Mr A, 35 year old Software Professional, worked in the UK for 7 years as a Sr Staff Design Engineer    and contributed into the UK pensions with One of the UK pensioners. He left the UK & settled in India for good. Now he was in a quandary as to how to deal with his UK pension rights. With his authority, we obtained the relevant information from UK Pensions authority and the total amount accumulated was in excess of £80,000. It became apparent considering the impact of UK Inheritance tax rules as well as few other important factors which increased the likelihood of a transfer to a QROPS in India being in his best interest. After completion of the transfers now Mr A is receiving Guaranteed immediate Pension of Rs 5,69,600(INR) per annum from LIC’s Jeevan Akshay V1 pension Scheme. He could receive this amount either annually, half yearly, quarterly or monthly. In addition, there will be no liability to UK Inheritance Tax and his nominated beneficiaries will receive the entire transferred fund direct on his demise, with no requirement for probate.

Client 2: Dr B, 45 year old Paediatrician  Worked in Scotland & England and contributed to both NHS pensions in England & SPPA(Scotland Public Pension Agency) in Scotland. Now She had left both UK & Scotland but still working in Singapore. Dr B wanted to transfer her both NHS & SPPA Pension rights to a QROPS in India. With her authority, we approached both NHS & SPPA & obtained the relevant information from both the Pensioners and the total amount, accumulated was in excess of £1,50,000 . On Completion of the transfer, we were able to Consolidate Pension rights of both NHS & SPPA to One LIC’s Jeevan Akshay V1 Pension scheme. Now Dr B is receiving Guaranteed immediate Pensions of Rs 9,33,000(INR) from LIC’s Jeevan Akshay V1 pension Scheme for the above mentioned pensions Corpus transferred. In addition, there will be no liability to UK Inheritance Tax and his nominated beneficiaries will receive the entire transferred Funds direct on his demise, with no requirement for probate.

Client 3: Mr C wants to relocate to India after 3 months, but wanted to take advantage of the ££ value(Current Exchange rate) and opted out of UK pension scheme while being in UK. With his authority, we initiated Transfer process & successful in transferring his UK pension rights to LIC’s Jeevan Akshay V1 whilst he is in  UK and he is able to took advantage of the Current Exchange rate. In addition Dr C is enjoying all the benefits of the scheme that has been illustrated in the above two case studies.

The sequence in brief

1.      I explain the scheme, work out the benefit illustration and answer your queries

2.      Collecting documents, sending by speed post to UK, tracking it.

3.      Receipt of forms from UK with calculation of corpus amount. I will process them and get them signed by client, send them back to UK

4.      Transfer of corpus amount from UK to LIC.

Documents needed

1.      Jeevan Akshay application form

2.      Two Passport size colour photos

3.      PAN card photocopy

4.      Address proof in India (Utility bills/ Bank Statement/ Ration card, Letter from bank etc..)

5.      A Cancelled Cheque Leaf

  Who am I?

Let me introduce myself. I am Ravi kumar I have been working as a Financial Advisor for more than 5 years. I have been instrumental in transferring pension for relatively good number of doctors & other professionals who have relocated from UK to India. I promise to offer quality service & my service covers existing Pensions review, Free QROPS Consultations & Guide, Transfer Recommendation Report and much more.

Please contact me for an informal chat about the transfer scheme with my following Contact details.

Mr Ravi Kumar. Financial Advisor (Code: 02777603), Life Insurance Corporation Of India

Off: Civil Station East branch (C.B-5-603), Ground floor, Oriental building, M.G Road, Bangalore-560 001.Cell:     +91 9844519872, +91 9980927393
                              Email:  ravi.sampige@gmail.com