Credit Cards: Friend or foe?

Good day everyone, I just got back from watching a movie, “The Expendables”, which was really an enjoyable and action packed show! Glad i got the movie tickets using my credit card, or else I would have had trouble getting good seats.

Which brings us to the topic today, Credit Cards: Friend or Foe? To some, credit cards are really awesome because they are really convenient and makes money for you (if you use it right). To others, credit cards are the worst nightmare ever because they are trapped with outstanding sums of debt that incur high interest charges after they have bought that dream phone that they always wanted. I personally feel that credit cards make my life easier, safer and more convenient.

I have a real life friend who got caught in credit card debt for about a year until he managed to take control of his spending. Initially when he applied for the credit card, he thought that he wanted to use it only for work purposes (travelling, petrol etc). After a while having the card though, the CC devil started to influence him to buy things that he wanted but not really needed. Thus, he used his card to shop extensively and ended up with 90% usage of his credit card limit. When the end of the month came, he thought to himself ‘Nah, I need cash for other things, I think I’ll just pay the minimum’, so he paid the minimum for a few months. After some time, he found out that he had trouble clearing out his credit card debt because it was too much. He started to struggle with his monthly expenses to settle off this debt. He even used his company bonus to pay off the debt, but there was still some left. After consistently cutting expenses to pay off the debt, he managed to be debt free in about 1 year time. My feedback to him is that in future, he should control his desire to buy expensive things and settle off the whole amount of credit card debt whenever he can because the interest is pretty high. He learned his lesson and took control of his credit card spending since then.

Some advantages of using credit card:

  1. Lighter wallet. This means instead of carrying RM1000 around to shop, you just need to carry your credit card and use it to pay for the RM1000 LCD TV you wanted to buy.
  2. Feel more secure. With less cash in your wallet, you don’t need to worry about thieves pick pocketing your wallet because there’s not a lot of cash in there. If your credit cards get stolen, you can always call the bank and have it cut.
  3. Time saving. Credit cards are accepted online these days. This saves us a lot of queuing time! For example I just needed to buy tickets online to watch a movie instead of queuing up at the counter. Also, I just pay my bills online and avoid the need to go to the various utility centers for this purpose.
  4. Added value; such as bonus points and cash back for your spending. This means, if you spend using your credit card and clear the debt before the interest incurs every month, you are actually making money because you get extra for what you have been spending so far!
  5. 0% interest loan if the bill is cleared before interest incurs. Isn’t it nice to have someone lending you a sum of money for no interest at all? Provided you clear your outstanding amount every month.

Some disadvantages of using credit card (if not controlled properly):

  1. High interest rates. Normally, banks charge 18% per annum on the outstanding balance of your credit card. Compared to your housing or car loan, this amount is really high. Therefore, control your expenses and clear the bill every month to avoid having to pay a lot of interest.
  2. Greater need to control your lust! Without credit cards, you wouldn’t have dreamed to get that LCD TV because you know that your salary does not allow you to. Having a credit card with you, you really need to be able to control your shopping lust and only go for things you can afford.
  3. Bad credit rating. If you always pay minimum amount every month, not only will you be snowballed with a lot of debts later on, but your credit rating will be really bad. This will mean financial institutions are going to be more strict on you when you apply for other credit cards, loans, etc.
  4. Lots of stress! Having that credit card debt parking in your account really will haunt you in the long run. You will start to feel stressed since you need to cut your expenses or earn more money.

That’s all for now folks. It sure was a long post! But I hope you have benefited from it. Control the credit card, do not let it be in control. For further advice or enquiries on credit cards feel free to contact me.