Updated on: 16 Jan 2020
Credit cards come with a bunch of benefits that includes the welcome gift, reward points, cashback, discount and more. Excited ??? You should.
Now, you might be thinking, “from the article title seems it belongs to the opposition party of credit cards but here I talking about benefits”
Let me clear this. This article is not about “why shouldn’t you have a credit card” but this article is about “ where shouldn’t you use credit card”. There are 5 transactions if you make through credit card, you have to bear the cost despite of any benefit.
Let’s have a look on those transactions
#1. Foreign Currency Transaction
Every time you make a foreign transaction through your credit card you have to pay a foreign transaction fee to the bank. Banks charged this fee to convert foreign currency transaction into INR.
The majority of credit cards charged foreign transaction @ 3.5% (Huge). But a decent amount can be saved if the money is exchanged through forex exchange.
Look at the exchange charge for US Dollars. The exchange charge is 0.015504 per INR 1 that is 1.55% ( 0.015504*100).
There are some credit cards like Yes Bank Preferred Credit Card (1.75%), HDFC Regalia Credit Card (2.0%) that charged less than 3.5% as a foreign transaction fee.
You can also consider the forex cards while comparing currency exchange rates. Go with the cheapest costed option.
You may also like to read – Best credit cards in India
#2. Cash Advance Transaction
Every credit cards provide the facility of Cash advance. Under this service, the cardholders are allowed to withdraw cash through an ATM up to a certain limit.
The cash advance limit is fixed by the banks. The limit can be lies between 40% to 80% of your credit card limit (can vary from bank to bank).
Purpose of Cash Advance Facility
Cash advance facility is provided by the banks to meet the urgent cash needs of the cardholder. But cardholder has to bear a heavy fee for fulfilling this purpose.
Why Shouldn’t You Do Cash Advance Transaction (Fees & Charges on Cash Advance)
You will have to bear three types of charges on the cash advance. These are
- Every Time you withdraw money through ATM you have to pay a transaction fee of 2.5% with a minimum fee of INR 300. This fee is same on all the credit cards of different banks.
- The charges are not stopped here. Over and above the transaction fee you have to pay a service charge of near about 3.5% (can vary with the banks) per month from the first day of withdrawal till the date of settlement.
- On the total of the above two charges, you have to pay a GST @ 18%. This is an additional burden on your pocket.
Let’s Do Some Calculations To Clearly Understand The Fact
Suppose you withdraw INR 10,000 from the ATM and settled the bill after one month.
Money withdraw – INR 10,000
Transaction Charges- INR 300 (minimum INR 300)
Finance Charges – INR 350 (3.5%*10000)
Total Charges – INR 650
GST – INR 117 (18% of 650)
Total cost – INR 767 (7.67%)
#3. Railway Ticket Booking
Like the fuel merchants, government departments also transfer the transaction charges on the user. Railways is one of these departments.
Every Time you purchase a railway ticket through credit card payment, you have to pay transaction charges.
If you pay through credit card you have to pay 1.8% transaction charges plus taxes.
Solution to get zero transaction fees on railway tickets
SBI IRCTC credit card is the only railway credit card in India. The credit card allows you to get railway transaction fee waiver along with multiple reward points on ticket booking on irctc.co.in.
Only in this case you can get any benefit on railway booking through a credit card. Otherwise, you can use a debit card for payment which attracts fewer transaction charges. One better option is to use Wallets/UPI like PayTm, Mobikwik because e-Wallets/UPI attracts zero transaction charges and gives cashback as well.
Also, Check – Top SBI credit cards in India
#4. Bill Payments
For the last 3 years, I pay our electricity bill and telephone bill online but I did never pay those bills through credit card or debit card. The reason behind this is the charges.
As PSPCL is a government department, so the transactional charges have to bear by the users.
They charge 0.82% charges on credit card payment and 0.69% on debit card transactions. On the other side payment through net banking & Paytm is free.
Like PSPCL, many other government departments charge transaction fees for making through credit cards or debit cards. So, it is not beneficial to pay the bills through credit card where you have to pay any charges.
Exception to the Case
There are two exceptions to this. The first one is the private service providing companies which don’t charge for bill payment through credit cards.
If you use services like electricity, telephone, water from these private companies, you would not to pay any transactional charges. You can pay through credit cards.
The second option is wallets like Paytm through which payment is allowed without having any transactional charges.
In this case, you can upload the wallet through credit card and then make payment through the wallet payment.
#5. Fuel Transaction
Fuel Outlet work at the very low-profit margin. Due to the low margin, they cannot bear the transaction charges imposed by the card issuer company (VISA, Maestro) & transfer to the consumer.
The transaction charge on fuel purchase is called fuel surcharge. Presently, Every time you make a fuel purchase through your card, you have to pay a fuel surcharge @ 1% (before 13 Jan 2017, it was 2.5%) subject to the minimum of INR 10.
You can avoid these additional charges on fuel can be by making cash payments.
Exception to the Case
Credit cards like Standard chartered super value titanium credit card, Citibank IndianOil platinum card offer cashback up to 5% (including fuel surcharge waiver).
You can get fuel benefits only on these credit cards.
Also Read – Best credit cards for fuel.
Fuel Surcharge Waiver Credit Cards
Firstly you have to pay the surcharge @1% along with GST @18% on the surcharge amount.
In case of fuel surcharge waiver, the only surcharge amount is credited to the credit account. But you still have to bear 0.18% tax.
This is a very small amount, but even this can be saved. because “every penny saved is a penny earned”.
You may also like to read – Best standard chartered credit cards
People often make these transactions without considering the transaction cost. These costs dilute the benefits of credit cards. Even sometimes, these transaction costs you more than the all-over benefits that you would get from the credit card.
Did you learn anything from this article? Let me know in the comments.