Young surfers in Muizenberg scornfully refer to bodyboarders as "doormats" and "credit cards". The convergence of the two insults may resound quite meaningfully for anyone who feels disenchanted with credit card costs or with the benefits they receive.
Users of a certain credit card may not be aware, for example, that you could be hit with a penalty of up to R175 for being late with your monthly payment or for exceeding your credit limit. Or that while one card provider may not hit you with penalties upfront, the interest rate implications of paying late may be heavier than at other banks.
Discovery will charge a muscular R175 penalty if its credit card holders overshoot their credit limits by 10 percent or more. First National Bank (FNB) charges R165 and Standard Bank R79 a month. Virgin Money, Absa and Woolworths do not have a penalty.
Discovery's R175 penalty for late payment is also the heaviest of the credit cards reviewed. FNB's penalty is R165, although Barrett Whiteford, the head of marketing at FNB Credit Card, says it levies the charge only when a customer is repeatedly tardy. Whiteford adds: "If this is completely against the behaviour indicated by the customer's payment history, we will deal with the late payment less stringently." FNB won't charge a late payment fee if you pay by cheque and it does not clear in time.
Discovery follows the same policy as FNB when it comes to penalties.
Standard Bank's charge is lower at R100 if you are up to five days late. If you do not make the payment to Standard Bank between day six and day 30, you will pay another R27.50 penalty. The amount moves up to R65 for each month of non-payment after that. But Standard does say: "All queries arising out of this fee are handled on a case-by-case basis and the reasons for overturning this fee ... would depend on the specific circumstances of each client."
Woolworths does not penalise its card users for late payment, but says it is considering a fee on amounts that are more than 30 days overdue. Absa does not charge customers a penalty if they are late paying an instalment. Virgin Money does not charge a late payment penalty, but it will cost you R125 if your debit order is rejected.
The interest paid on your credit card debt is worth looking at, although this column can only skim the surface. For almost all cards there is a period of between 55 and 25 days after a purchase when you pay no interest on that purchase. (The number of days depends at what point in the billing cycle you pay for the item or service.) Gavin Muller, Virgin Money's credit products director, suggests you try to pay the full amount outstanding on your credit card within that interest-free period. Don't pay just the minimum amount and don't allow the debt to roll over, he says. "Let the bank bankroll you. That is the cheapest way of banking."
If you cannot settle in full every month, "interest is calculated on the outstanding balance at any given time", Muller says.
Woolworths breaks with general industry practice and charges interest on an outstanding amount from the date of the transaction, not from the date the amount became due. It says that if you make a partial payment, only the shortfall will attract interest from the date of the transaction.
This differs from Absa. When asked what would happen if a client paid only R400 of a R500 outstanding balance, Errol Smith, the manager of Absa Group media relations, said: "If a customer does not pay the full balance, interest will be charged on the full R500 (from the transaction date), up until payment is received and then on the difference - R100 - until the statement closes."
Discovery's interest charges kick in 44 days from the date of purchase.
Drawing money out of your credit card incurs interest from the time you withdraw the money and also involves transaction costs. So if you are out on the town and your bank account is as dry as an empty martini glass, you should think twice before drawing cash out of your credit card.
FNB has a sliding scale for costs: if you draw up to R500 from one of the bank's ATMs it will cost R5, and from another bank's ATM R10.75. The figures rise to R15 and R20.75 respectively if you draw more than R1 000. Borrowing the money from your FNB budget account will cost R16 plus one percent of the amount withdrawn (that's a total of R26 to get your hands on 10 buffalo notes), but it may be some comfort that the total charge can't exceed R500.
Virgin Money has a flat withdrawal fee of R8.75.
Standard Bank card users pay one percent of the amount withdrawn plus R3 if they use the bank's ATMs and R9.70 if they use Saswitch ATMs. Discovery also has a one-percent fee on cash withdrawals plus R5 if you draw from a BOB or Saswitch machine. But if you draw from your budget facility you pay R16.
Absa credit card customers pay R3 for the first R100 withdrawn from an Absa ATM and R9 from a Saswitch ATM, and after that they pay 90c per R100 or part thereof.
The Woolworths store card does not have a budget facility and does not have a cash withdrawal option.
Lately there has been a high tide of radio advertising about the discounts available from partner stores if you pay for your purchases using your Discovery credit card. A typical advert runs: "Up to 15 percent off everything you spend on your Discovery card at ..." and then goes on to list Discovery's partner stores. It's worth looking at some of the limits on the offer.
A check on Discovery's website will show you that all Discovery Health and Discovery Life members who join Vitality and get a Discovery credit card qualify for a 10-percent discount on purchases during the first three years of membership. Now I'm guessing here, but the point of the adverts is surely to get new members to sign up to Vitality, so the mention of a 15-percent discount is, to put it kindly, optimistic.
The only people who qualify for 15 percent are Vitality members who have Gold status (a measure of good overall health) and who have been members for more than five years. All Blue status members - no matter how long they have been members - are 10-percenters. Over time and with improved health habits, you can work your way up to a 15-percent discount. Fair enough - Discovery uses this reward system to retain Vitality members and to improve their health. It's a carrot and celery stick approach.
But you need to take note of this important sentence on the website, because it may glide right past you unnoticed: "For discount purposes, the value of purchases at any partner store is limited to 30 percent of the total amount spent on your card during your statement billing cycle."
Put another way, 30 percent of the total amount you spend on your card becomes the ceiling on the amount of spending that qualifies for the discount at each partner store. If your spending totals R4 000 in a billing cycle, purchases up to R1 200 (30 percent of R4 000) will earn you discounts at each partner store. If, out of that R4 000, you spent R500 at Look & Listen and you qualify for a 10-percent discount, you will get back R50. If you spent R1 500 at Exclusive Books, you will get back R120 (not R150), because your overall spending that month applies a ceiling of R1 200. But if those were your only two purchases on your card that month, your spending would total R2 000 and the ceiling would be R600 (30 percent of R2 000), so you would get your R50 discount on your CD purchases, but the discount on your books would fall to R60. That is still a saving of R110.
Can you fund the cost of your Vitality membership and the annual cost of the credit card from the discount on your spending? Let's assume you are eligible for a 10-percent discount, have a single membership of Vitality, which was R79 a month last year (at the time of going to print the 2007 fees had not been released), and choose the most basic card, which costs R135 a year if you receive your statements by email and SMS. The R135 is paid as a lump sum, but, for this example, it equals a monthly amount of R11.25. That is a total outlay of R90.25 a month.
If you sign up for Discovery through a broker, he or she might not tell you your credit card discount is constrained by your overall spending. (Mine neglected to do so.) Only you know, based on your lifestyle and spending habits, whether the Discovery card and its discounts are a cost-saving option.
When it comes to using credit cards, it's up to you to dodge the rocks, but it's good to know where they lurk. If you incur late payment costs that you think are unfair, challenge your bank - a number have said they do not punish responsible customers and charge penalties only when there is repeated bad behaviour. Be smart and settle the straight portion of your debt in full every month. Don't be a doormat.
(PS: I have nothing against bodyboarders - anyone who swims with sharks deserves respect.)
This article was first published in Personal Finance magazine, 2nd Quarter 2007. See what's in our latest issue