Sunday, March 2, 2008

Do not use Credit Card for withdrawing cash

Many of us use credit cards, debt or ATM cards to withdraw money. In the case of a debit card or an ATM card you are using your own money. But this is not in a case of credit card. Most people fail to understand that the cost is involved in withdrawing cash on a credit card.

One must know what precautions should be taken in order to avoid heavy charges that are likely to be levied on the credit card. The most important is cash withdrawal on the card.

The first thing is to avoid cash withdrawal by using credit card as it is expensive. There is a transaction fee levied to it. Interest charges are applicable without any credit period. So this option should be used only in emergency.

The Last Option

  • Cash withdrawal on a credit card is expensive.
  • It has a different impact as compared with a normal expense on the card.
  • There is a transaction fee levied.
  • Interest charges are applicable without any credit period. This option should be used only in an emergency.
There are two major types of expenses that will be incurred on this transaction. Whenever you withdraw cash from an ATM, there is a transaction fee that will be levied. This fee is calculated at a certain rate, usually at 2 per cent to 2.5 per cent of the amount withdrawn. If the rate is 2.5 per cent and the amount withdrawn is Rs 20,000, then an immediate charge of Rs 500 will be charged.

Now days credit cards have the feature or the condition wherein the charge will be applicable from the date of making the withdrawal and applicable till the time of full payment.

One thing has to be understood that minimum charge is applicable. This could be something like Rs 250-300 and therefore a small withdrawal will result in a larger hit as far as the percentage calculation is considered. Though some of them are aware of the charges but fail to realize that there is another expense that is already on the way.

The expense related to finance charge, which is normally payable when the payment is delayed and is also known as the interest charge.

There is a credit period available under a normal expenditure on a credit card during which there is no interest charged if the payment is made by the stipulated time. But that is not possible for a cash withdrawal.

It means that you’re billing charges starts the moment the cash is withdrawn and more important is the time period till which the interest will continue. One has to read the wordings for this carefully because if it says interest till the time of full payment, then even if there is a part payment then the charges will continue until the entire amount withdrawn as cash will be paid back to the credit card company.

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