Credit card Trap? Reminder for applying Credit card to pay Tax, Tuition Fees & for Large Purchases

Nowadays, credit cards are not only for purchasing high value items, but also with other different usage. Many people apply credit cards to pay tax and tuition fees. As a result, many banks offer various rewards, gifts, and miles to attract customers to apply their credit cards. However, people may easily overlook the credit card offers' terms and conditions, leading to an unexpected extra cost. This article will consolidate the details of using credit cards for tax payments, tuition fees payments, or other large purchases. Meanwhile, we will point out the common misconceptions, in order to prevent people from falling into these traps.

Avoid Loss! Read Credit card T&C THROUGHLY before application

1. Requirements of annual fee waivers
To cope with the intense market competition, many card issuers may offer annual fee waivers for 1 – 3 years or even permanently, in order to attract more applicants to apply the credit card for daily spending, tax payment, tuition fees payment, or other large purchases. However, you may need to fulfill some requirements to enjoy the offer, such as minimum spending amount. Therefore, it is necessary to read carefully and understand the terms and conditions before applying a credit card.

2. Upper limit of cashback
Many credit cards offer cashback rewards to attract customers recently. While we are enjoying the cashback rewards, we should beware if there is any restriction on the promotion like the upper limit of cashback. Otherwise, the amount of cashback you earned may not be as expected after using the credit card to pay for large purchases. Besides, you should check the related terms and conditions carefully whether the high cashback rewards only apply to designated spending categories. As some spending categories, for example, paying taxes or tuition fees, may not be included for the high cashback rewards. Furthermore, remember not to overspend or disregard your actual needs and repayment capabilities just for the sake of cashback rewards. Otherwise, you may end up exceeding your budget and facing a heavy financial burden.

3. Restrictions on redeeming points & miles
It is great if we can earn points or miles when paying tax, tuition fees, or other large purchases. However, it is important to notice that whether the points will be expired, any handling charge or minimum redemption requirements when redeeming the miles.

4. Chargeback protection is not guaranteed
What can we do if a shop closes down after making prepayments by credit cards? Generally, you can raise a chargeback request despite there may be some differences on its procedures among different card issuers. However, it is important to notice that the chargeback protection is generally not applicable to instalment payment plans on credit card. If the shop closes down, you may not be able to recover the funds but still need to repay the remaining instalments. Therefore, remember to read the terms and conditions carefully before making any payment to prepaid service or products.

Common Misconceptions about Credit Cards

1. Having multiple credit cards = poor financial management?
If we use the same credit cards for taxes, tuition fee and other large purchase, will it become convenient while benefit our financial management? In fact, using only one credit card may affect your credit score due to a high credit utilization ratio. The ratio is calculated by dividing credit card balance by credit limits.
1) If you have a credit card with HKD 10,000 credit limit and a balance of HKD 7,000, your credit utilization ratio will be 70%.
2) If you have two credit cards with the same credit limit, and the total balance is HKD 7,000 for each card, your credit utilization ratio will decrease to 35%.

2. Canceling credit card instantly after receiving the welcome bonus?
Have you ever thought about canceling the credit card once received the fabulous welcome offer? However, you should note that handling charge may be involved if you cancel the credit card too early. While the fee may even equal to the value of welcome gift. Therefore, please read the terms and conditions carefully before applying the credit cards. Meanwhile, if you are planning to enjoy the welcome offer by paying taxes or tuition fees with the credit card, you should review the terms and conditions of the promotional offer carefully in order to understand if there are any restrictions on eligible spending categories.

3. Is it okay to max out my credit card?
If a cardholder maxes out the credit card and even the transaction is approved, the card issuer/financial institution may charge a processing fee around $100 to $200 without prior notification. Therefore, it is important to check the credit limit and available balance before making any purchases to avoid such fees.

4. Can credit records be wiped?
Positive credit records such as on time repayments will be retained until the account is cancelled. However, negative records such as late repayments will remain on your credit report for up to 5 years after the debt is fully repaid. Therefore, remember not to over-spend just for the sake of rewards.

In conclusion, while you are applying a credit card to pay taxes, tuition fees, or for other large purchases, it is important that to not overlooking the terms and conditions and over-spending just for the sake of fabulous privileges as a smart consumer. In addition, you should not just listen to other people's opinions about credit cards, but take the initiative to clarify the fallacy to develop a healthy financial management and spending habits.

If you are facing problem on repaying your credit card debt, it's important to take action as soon as possible. Credit card interest rates as high as 30% or even more with the compound interest effect, the interest can accumulate quickly. PROMISE Hong Kong Debt Consolidation Loan may be helpful for you to repay your credit card debt at once with low interest rate, reducing interest comparing with just repaying the minimum amount. The loan application process is simple and fast, you may apply with your ID card and mobile phone number only^#.