In many countries, the biggest liability that comes with being 18 is Alcohol, but for Malaysia, it’s credit cards! With virtually no acquaintance with credit terms and lack of foresight pertaining to its usage, things soon spiral out of control for youngsters signing up for their first credit card.
Although credit card debt is universally problematic for people of all ages, but for the young, it is far more aggravated. Firstly, being inexperienced, it is highly unlikely that they will get a high-paid job, making it harder for them to pay off the debt.
Secondly, without fully understanding terms such as Annual Percentage Rate and credit limit while spending compulsively, the monthly outstanding amount gets accumulated. To make matters worse, interest rates can be extremely unforgiving. It all becomes a very lethal combination.
Even though the recent economic crisis of plunging Ringgit rates and oil prices, there is light at the end of the tunnel for credit card holders. In fact, the country is extremely lucky! There are many excellent cards to choose from, each with its own combination of perks.
Perhaps the best news is that Malaysia has its own debt counselor, AKPK, which is Bank Negara’s very own subsidiary. Its main purpose is to help people break out of their vicious cycle of debt while providing solace to those who seek financial guidance. The awesome part – the service if FOC (free of charge)!
Some terms to consider
1. Annual Percentage Rate (APR)
This term is very misleading because it says ‘Annually’, but it is actually a daily-rest interest paid on your balance account. Although the APR percentage is a yearly rate, it must be divided by 365 and adjusted to your balance payment.
2. Credit Limit
This is the maximum amount you can charge on your card, which can be 2 or even 3 times your monthly income! Although with this limit in place, some banks let you swipe over the limit, and then they will charge you extra “over-limit” fee! You must think that’s outrageous! But it is the truth, according to my actual experience.
3. Various fees charged to your account
There are several charges that you may or may not know about. Some of these include Annual fee, joining fee, finance charges (interest for delay on outstanding amount), cash advance fee, late payment charge, and service tax. For further information on these, visit here.
4. Interest free period
A period of 20 days within which you have to clear your balance. This is a common aspect to most Malaysian banks.
5. Balance transfer rate
As the name says, it is a small service charged for transferring balance between accounts.
Instead of monthly payments, you can pay your dues in installments that are spread over a year or any specific amount of time. However, if you do not read the terms & conditions thoroughly you might fall into a trap. Make sure you ask about additional charges, minimum purchase limits etc. You can find out more in this article.
Wise ways to managing your credit card account:
There are many approaches that you can try out to manage your account more efficiently, regardless of the type of bank.
7 habits to stay financially sound:
1. Set up a budget
It is important to be meticulous and to plan ahead for your monthly expenditure. It is not enough to just write things down and make a new year’s resolution. You must practice what you preach. Make sure to also include some room in your budget for bills.
2. Save up
Set some money aside for emergency – money that you will not go through unless extraordinary circumstances arise. It may also be used as retirement funds or to live on if you are laid off and looking for a new job.
3. Be Aware
Knowledge is power! Before taking up new offers or applying for a card, make sure you ask the right questions and read the ‘fine print’.
4. Stay secure
Scammers are everywhere and they are getting more cunning by the day. I will be elaborating a few of these later, but the most important thing is to never give away sensitive information, no matter who they are! There have been plenty of cases where scammers gain your trust to get to your pocket. Do not give your PIN number, card number or physical card to anyone.
5. Be responsible
Making a purchase on impulse because you want the latest Smartphone or Gucci bag is not ideal if you cannot afford it. Instead, be patient and don’t care what others think.
6. Don’t settle for minimum when you can give more
Paying the monthly bare minimum does nothing to clear your debt but make it worse. The remainder starts to accumulate interest if you have exceeded your creditor’s grace period. In a blink, it becomes hundreds or thousands of Ringgits more than your initial debt. So always pay full. There is also a method called the ‘Snowball technique’ elaborated by the AKPK if you are having trouble with multiple payments.
7. Credit rating
Owning a credit card is very closely related to a good credit rating. Banks assign scores to account holders to determine their eligibility for loans, mortgage and even interest on your loans! So it matters to have a good credit score. Credit card history makes up a big chunk of CCRIS rating as they take into account your payment history, amounts owed and length of credit history.
The ‘Rate’ rating:
Below I have ranked credit cards based on 2015 interest rates from highest to lowest. Keep in mind that there are other factors to scrutinize as well. Buy whichever one fits your criteria and requirements best.
In the first position with the higest interest is Affin Bank’s Touch ‘n’ Go Gold card at 9.99% interest. Following is Alliance bank with it’s You:nique Great Rates Mastercard charging a 9% interest. Afterwards we have, Standard Chartered Visa Translucent card with rates ranging from 8.88% to as high as 16.99%. Lastly, Maybank and Citibank both charge as low as 8.88% on their Visa and Gold cards, respectively.
A tale of a scammer
Lastly, I want to finish off with one of the most popular credit card scams out there.
First is the phone scam, where the scammer cajoles out your IC number and puts pressure by suggesting that you have been a victim of identity theft with legal consequences. The fraudster then gives you a fake BNM (bank Negara Malaysia) number where the victim divulges all information and agrees to deposit money to a third party investigator’s account.
To find out about all the different kinds of credit card scams faced by Malaysian citizens, you can visit the AKPK website.
Gaining adequate knowledge is a surefire way to avoid any pitfalls. Check out some of the websites I have mentioned above for more in depth research. Happy hunting!