Chances are that nine out of 10 people reading this article will carry at least one credit card. Compare this to the fact that less than three in 10 would have taken life insurance cover, and you get a sense of the popularity of credit cards in this country.
Yet, beyond convenience, flexibility and loyalty points, why would you choose a credit card over alternative payment options, such as cash, cheques and pre-paid cards? The answer is that, if used responsibly, credit cards can be an effective tool to manage your finances and enhance your lifestyle.
Credit cards issued in the UAE and the region are typically loaded with benefits. Alongside the complimentary golf sessions, airport lounge access and valet parking, cards come with meaningful benefits that can help with financial planning. Accumulated points can be redeemed for gifts or cash back on outstanding balance. Most cards also offer discounted deals on major retail and hospitality brands, which translate to great savings.
For a nominal fee, some cards even provide insurance protection worth about AED 300,000 against permanent disability, critical illness or loss of life. The credit shield also waives off the outstanding balance in case of redundancy or loss of life - again for nominal charges.
One notable advantage of purchases made through credit cards is that cards provide a greater level of customer protection through the chargeback process. If a customer is unhappy with services rendered or goods purchased, the possibility of getting a refund is higher if the purchase was made using a credit card rather than by paying cash. Credit card payments also help avoid potential losses from fraud because you do not lose money in your bank account. Your card issuing bank will resolve the matter after investigations if notified in time.
With more services now available online, getting things done from the comfort of your home is easy, be it paying utility bills, booking a vacation package or making a purchase from your local hypermarket. However, with internet fraud becoming a major concern, it would be a good idea to opt for a web-shopper card with low credit limits. Specifically designed for internet use, such cards come with additional online fraud control measures.
Using a credit card is particularly useful when travelling abroad, because you do not have to worry about loss of cash or foreign exchange rates. In the event of your card getting stolen or lost, chances are you will not lose any money from fraudulent transactions, provided you inform the card company early enough. Many credit cards also offer free travel insurance enabling you to enjoy your vacation.
Free supplementary cards for loved ones, is another optional benefit offered by credit cards. In addition to setting the spending limits on these cards, the facility of a separate statement for each supplementary card enables you to keep tabs on the money spent.
The collective value of the benefits offered by a card can add up to substantial savings, but only if you clear the outstanding balance fully each month. Also, when making a purchase, make the most of the interest-free period. The period between the purchase and the payment due date is effectively a time when the transacted amount is borrowed for free. As long as the outstanding balance is cleared by the payment due date each month, no interest is charged. In the meantime, the money in your bank account can be left intact, accruing interest during this period. Besides, when you pay with your credit card, you do not have to worry about cheques bouncing due to insufficient funds in your account.
The golden rule is to use your card for routine or planned purchases and pay your outstanding balance in full and on time. This way, you get to accumulate the benefits associated with your credit card without putting yourselves at risk of unmanageable levels of debt.
The writer is Chief Executive Officer of Network International
