Credit card usage and discipline

ARE credit card debts bad?

Well, it really depends on your usage of credit cards. Think of credit card debts like any other debts. Debts when used for productive purposes bring positive results but when used for the wrong reasons, e.g. consumption, can bring negative impact on our lives.

Credit card is an electronic payment instrument which allows you to purchase products and services without using cash. So, same as using cash for purchases, one has to be disciplined with credit card usage.

Did you know that the second highest debts among young workers in Malaysia are from credit cards?
Here is an interesting survey feedback on loans of 1,002 respondents aged 18-35 years old:

* 51 per cent took car loans.
* 39 per cent possessed credit cards.
* 90 per cent had up to two credit cards.
* 10 per cent had three to six credit cards.
* 33 per cent took study loans.
* 28.9 per cent took housing loans.
* 15 per cent took personal loans.

(Source: Survey of Financial Behaviours & Financial Habits of Young Workers undertaken by Consumer Research & Resource Centre, Malaysia for the Central Region in July 2012).

Credit Card Repayment Behaviour

This is how Malaysians fare compared with other Asian countries in a survey conducted by Nielsen Global Survey of Investment Attitudes 2012. Sadly, Malaysia ranks low in the list when it comes to paying credit card outstanding balances in full:

* Taiwan: 89 per cent
* Japan: 87 per cent
* South Korea: 85 per cent
* Singapore: 80 per cent
* Indonesia: 59 per cent
* Malaysia: < 50 per cent
* Vietnam: 27 per cent

Interestingly, the survey also reported that only 18 per cent of Malaysians pay the minimum five per cent payment every month while another 15 per cent pay more than the minimum amount.

Smart Ideas with Credit Cards

You can have two different credit cards; one for office use, where you charge items used for company's expenses and pay the outstanding balances of the credit card in full when your company reimburses your claims. The other is for personal use, which is paid from your salary.

You can use your card to pay your monthly expenses, e.g. utilities, assessment, insurance premiums, etc. It can also be used for annual payments such as membership fees and subscriptions for periodicals. That way, you can clearly account for your recurring expenses.

Use credit cards that give you rebates on your purchases. It is like buying things with discount, which is another form of savings.

Use your accumulated credit card points wisely.

The smart practical tips below will help you become more prudent in using your credit cards:

Practical Tips

1. Remember to always take time to read the fine prints in your credit card agreement and statements.

2. Make it a practice to check your credit card statements for discrepancies or unauthorised transactions.

3. Scrutinise your December credit card statements every year as card issuers are required to disclose the following:

* Total credit for the year.
* Total interest incurred.
* Total fees and charges incurred.
* Table on minimum payment warning.

So, in January next year remember to check your December 2013 credit card statement to better understand the interest payments for your outstanding credit card balances.

4. Notify your card issuer immediately by telephone if you found any error or unauthorised transaction in your monthly credit card statement. You can notify your card issuer verbally, and follow-up in writing as soon as possible.

5. Should you not understand any item in the monthly credit card statement, call the card issuer for clarification.

6. Pay your credit outstanding balances in full and enjoy an interest free period of about 20 days for all your transactions. However, if you only make partial payments you will lose your interest free period.

7. If you made only minimum payment each month, i.e. five per cent of the outstanding balance, you will be paying more interest for a longer period.

Always remember that paying only the minimum of five per cent of your credit card outstanding balances can result in a huge debt due to the interest chargeable and its compounding effect.

So if one only pays the required minimum amount, be prepared that over time you will have a huge outstanding balance.

Pay as much as you can, as early as possible, so that you clear your credit card debts earlier and the interest you save can be put to better use, e.g. retirement savings.

Overwhelming Credit Card Debts

Ask your card issuer for a waiver of interest and finance charges and restructure the outstanding amount into a term loan with repayment terms that you can afford.

You can refer to the Self Help Guide: Debt Relief Plan of Credit Counselling and Debt Management Agency/Agensi Kaunseling Dan Pengurusan Kredit (AKPK) at its website: www.akpk.org.my.

(Article contributed by Credit Counselling and Debt Management Agency)

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