Saturday, July 25, 2009


Credit Card Users Learn Tough Lessons

They are deep-pocketed people. Risk taking comes ever so naturally to them. These two combine to make these people a lethal force in the market place. Their entry and exit, not surprisingly, have left reverberations across the market. 
Thanks to the credit card issuers among the foreign and new generation banks, spending has acquired a new dimension and definition among the Indian middle class. 

If there was a competitive rush to issue credit cards, there was also this unusual craze to hold them. Thus, there was a convergence of interest. This had indeed led to the emergence of card culture.
With the economy doing well and individual confidence running high, there was a perfect harmony of interest. When times were good, everything had worked. Alas, these are troubling times. Things have already started to turn sour. A sense of despair and a feeling of wronged have overtaken the credit card users as the issuers of the plastic money have begun to tighten their screws in an obvious attempt to cover their positions.

The meltdown
In the wake of global financial meltdown and following especially in the aftermath of the financial shenanigans at the Ramalinga Raju-founded Satyam, many credit card players have begun to take some really drastic steps as a measure of abundant caution. Taking precaution is alright and welcome. 

What is incomprehensible, however, is the way they went about doing that. Many credit card users found themselves in a jam all of a sudden. To their dismay, they have discovered that their limits have been slashed. This unannounced unilateral cut in their limits has thrown a spanner in their financial planning. While slashing the limits, the card issuers have overlooked the `disruptive’ implications of their move. What if a card user has already overshot the lowered credit limit? In this instance, the `over used’ money has to be paid immediately. 

More often than not, the credit card issuers had gone overboard in luring clients by heavily advertising the `roll over option’ or the `minimum payment facility’. Any user who avail himself or herself this roll over facility ends up paying very heavily in the form of interest charges (well over 35 per cent now). In fact, the credit card players make huge money thanks to these unsuspecting clients who roll over their payments for a variety of reasons. In the changed context, a sudden slash in the credit limits has caught the ``roll-over clients” in a tight spot. How could they suddenly find lump sum money to settle `overshot amount’ arising primarily because of lowering of their credit limits? If they don’t pay it immediately, they are charged additional interest on the so-called `overshot amount’. In the end, the card user is left paying usurious interest.

Damocles sword
With the proverbial sword hanging over their heads in the wake of recession in the U.S. and Europe, software professionals are already in a state of extreme uncertainty. In fact, the real estate boom and the growth in Indian car population are largely linked to the rise of Indian software industry as a global powerhouse.

As they struggle their way out of the troubled times, the out-of-the-blue cut in their credit card limits has further compounded their misery. There are larger social implications here. What impact will the pile-up of financial worries on individuals (caused in parts by unhindered spending habits and partly due to economic slowdown-induced actions) have on the society at large? It is reasonable to assume that an individual will realign his/her expenditure to the new situation where the incomes have shrunk and uncertainty has increased. For a client who rolls over payment, cutting credit limit can prove very disruptive.

In the name of competition, the credit card players had freely roped in all and sundry clients without any real scrutiny of the creditworthiness. And, they had also provided the clients unbelievable credit limits without any rhyme or reason. At the first hint of a trouble, these players have moved in fast to cut any possible loss. Their sheer size, give these players a kind of a tonic to indulge in strategies that have disruptive elements in-built. The moral of the story is: Spend within the means.


About bench3 -

Haja Peer Mohamed H, Software Engineer by profession, Author, Founder and CEO of "bench3" you can connect with me on Twitter , Facebook and also onGoogle+

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