There was a time in the not-so-distant past when only high net worth individuals had credit cards in Malaysia. When a wallet was opened and an American Express card was visible, you would know that the owner had made it in life.kclau-creditcards

Everyone else could only dream of owning that small plastic card, and just had to make do with cold hard cash. ?

Today, who amongst us is not familiar with the ubiquitous credit card. Even teenagers have them nowadays! Students and young employees also, can have so many credit cards that there is no space for their IC inside their wallets.

We can hardly walk 5 steps in a shopping mall without being set upon by a team of extremely eager credit card salespersons.

What has driven the proliferation of credit cards amongst the Malaysian public?

The answer my friends, is profit. Unfortunately though, not ours.

The profits are all for the bank. Yes, banks have discovered over the years, a wonderful new revenue stream which is basically, interest on the debt you and I incur when we overspend using credit cards, and can’t pay the outstanding balance in full at the end of each month.

Come to think of it, what a really good deal for the bank, and what a really bad deal for us!

When Do You Need A Credit Card?

It’s not all bad though. Let’s face it, credit cards do afford us a lot of convenience. In this day and age of increased crime rates, we would not want to walk on the streets carrying thousands of ringgit in cash on our person. It’s easier to pay for large purchases with credit cards, and keep a small amount of cash in our wallets.

The banks have also structured their offerings in such a way that purchasing items using their credit cards, could benefit you in ways that cash purchases would not, in the form of rewards and other freebies.

But let all these plus points not distract us from the potential dark side. If you are not a financially disciplined person, or if you have a weakness for overspending, a credit card tucked into your wallet is like a cigarette to a smoker tying to quit.

When Credit Card is Not For You?

It is very difficult to resist the temptation to just swipe it and grab that electronic gadget, smartphone, outfit or designer handbag that you’ve been eyeing. At the point of purchase, you rarely consider how you will feel when the bill arrives later in the month. All you can think of is your purchase.

And then, a few weeks later when the excitement of your purchase has died down and the bill comes, you experience that sinking feeling of knowing that you cannot pay the bill in full from your salary. So, you hastily make a payment for the minimum balance repayable, and resolve to be more responsible next month so that you can settle the bill in full.

Only…the same thing happens the following month…and the month after that..and the interest on the outstanding balance continues to compound, and before you know it, you’ve racked up a huge outstanding balance which you cannot hope to pay off.

This is a situation to be avoided at all costs. 

Now that we know why we should beware of credit cards, let’s look at how we can use them wisely.

Credit Cards Rationalization Check List

  • First, think about why you need a credit card in the first place. Do you really need one? If not, why bother to get one? Just spend cash. And if you don’t have enough cash, then delay the purchase, or adjust your spending patterns to ensure that you prioritise your cash spend profile more efficiently.
  • If the above cannot work for you for a variety of reasons, and we all know that with a family in Malaysia today, sometimes one has no choice but to survive on a combination of cash and credit to make ends meet, then you can look at applying for just one credit card and try your best not to use it.
  • In choosing a credit card, compare across the banks. There are different cards out there, each with their own benefits and shortcomings. Compare cards across banks on sign up offers, annual fees, cashback options, interest rates, promotions and packages, rewards, petrol rebates, travel offers, balance transfer options and a range of other characteristics.
  • Always be mindful of the hidden fees that come tacked onto these cards. There is usually an annual fee and various other fees. Try to negotiate these away before signing up, or go for cards which offer you the option to redeem your points and set them off against these fees.
  • Lastly, remember that having a credit card is a responsibility. Don’t allow yourself to act on impulse. If you are a very impulsive shopper, it might be safer to leave the credit card at home! ? For the rest of us, we could try to get into the habit of planning our purchases in advance.

The Rule of Thumb

Make a list of the items that you need to purchase and rank them in order of priority. Only purchase the items that you really need, and use cash as much as possible. The best rule of thumb is, if you can’t afford to pay cash for it, don’t buy it. Beware of your credit card and use it wisely, and you will reap the benefits without the shortcomings.


KCLau
KCLau

Personal finance author and trainer

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