Minimum balance trap
Most people understand that paying only the minimum balance can cost you thousands of dirhams in interest very quickly. But what are the consequences of not paying the minimum balance? Apart from interest on the full amount spiralling, you will be charged a late fee – and going forward, you could also see a black mark on your Al Etihad Credit Bureau credit report – and any other debt you apply for will become more expensive. Also, if you have an introductory or discounted interest rate, a missed payment could lead to the bank withdrawing the deal.
Cash fees
This is a trap many fall into. Using your credit card, rather than a debit card, to withdraw cash can hit you in two ways – you will pay a cash advance fee of around 3 per cent and you will pay a cash advance interest rate of about 3 per cent, with interest starting to accrue from the day of withdrawal.
Forex fees
On top of cash fees, using your credit card overseas will attract a foreign currency processing fee of anywhere from 1 to 3 per cent, and a flat conversion fee of about Dh20.
Credit Shield
This can cost you 0.5 to 1 per cent of your monthly outstanding balance. When you apply for a card be sure to explicitly refuse it, if you do not feel you need this protection, and keep an eye on your statement. However, having a credit shield can be useful – it will clear some or all of the outstanding balance on your card, often to a maximum level, in the event of your death, permanent disability or even unemployment or hospital stay. Again, before accepting it, check what is covered and to what level by your bank.
Monthly fee
Instead of interest, Islamic or Sharia-compliant credit cards bear a (non-compounding) profit rate or a monthly fee (in addition to any annual fee) – make sure to check for either of these when choosing your card if you’re not familiar with Islamic finance. This is charged when your balance is not paid off in full.
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