Selecting A Credit Card

Peruse the newspapers and you will see countless ads that offer free gifts, fee waivers, contests, cash advances and so on. This aggressiveness can be attributed to the intense competition among banks to grow their loan portfolio.

Financial institutions are vying to get a bigger slice of the personal loan pie because such loans involve lower risks compared to corporate lending. One of the most attractive areas of personal lending is the credit card business.

Faced with this barrage of credit card promotions and offers and all sorts of marketing strategies, what should consumers do? How do you determine if the promotions are worthwhile? What are the hidden costs you should know about?

To begin with, do not be influenced by the promotions because you might not need the free gift at all. Do not fall into the trap of spending more just to obtain free gifts or win contests too.

On the surface, there may be no 'hidden costs' for the consumer as the promotion may form part of the financial institution's marketing campaign, but in reality, the expenditure will be recouped over the medium term in the form of charges, fees and interests levied on the cardholders and merchant outlets.

When taking part in contest-based promotions, bear in mind that they are based on the premise that the more you spend, the better your chances are of winning the prizes.

If you are applying for a credit card to take advantage of its cash advance benefits, do take note of the high charges levied. The finance charge is usually 5% of the amount withdrawn. Then there is also the interest rate. Cash advances are beneficial to a consumer who requires it for a useful purpose but it is a debt magnet, no matter how you see it, since it is a borrowing and needs to be settled.

As for 'annual fee waiver' promotions, some credit cards may come with certain conditions. Some 'free for life' cards require you to, within a certain period, charge a designated amount or carry out a stipulated number of transactions. You may also be required to carry out the condition every year, so make sure that you can sustain this without overspending.

Apart from this, the usual criteria for selecting the right card also apply. You need to examine why you want a credit card and what you want it to do for you. Look at your lifestyle requirements and shop for a credit card that matches your needs and requirements.

Worldwide acceptance and customer service are important because customers expect the card issuer to respond quickly during emergencies. Customers should also be rewarded for being loyal.

Consumers should refer to the three 'R's; recognition, rewards and relationship. A credit card also serves as an entry level to sell other products offered by the issuer, thereupon creating a customer-bank relationship. It is more convenient to get a credit card from the bank with which you have other banking or loan relationships. This application process is simplified and payment is convenient.

At the end of the day, as with most things in life, self-discipline is required, especially when it comes to managing your personal debt.