It’s hard to imagine a world without credit cards.
Credit cards have given us so much flexibility to shop, dine and travel without paying a single cent upfront. In today’s world where security is generally an issue, it provides a safe alternative to carrying around large amounts of cash to perform all your payments and transactions. Credit cards also provide lots of good benefits and discount offers which can sometimes come in very handy when planning a nice meal or a good holiday! Not to mention collecting points which you can use to redeem something nice, although it usually requires an absurdly high number of points!
As useful as the credit card is, it is important to remember that the credit card concept is essentially to encourage consumers to spend as much as they can. Discounts and packages are often carefully aimed and marketed to encourage customers to spend more to get additional discounts which is questionable whether it leads to real savings in the end. Hence, be careful not to fall into the credit card debt trap as many young people have. Here are some tips to avoid credit card debt.
Avoid Having Too Many Credit Cards
Credit card promoters are very aggressive these days and often offer all kinds of additional freebies when you sign up for a new credit card. As tempting as these might be, do try to avoid having too many credit cards as it is very easy to lose control with your spending when you know you have lots of credit to spare. Remember, any credit on your credit cards need to be paid off!
Some credit card companies offer free balance transfers from other credit cards. While this is not something to be encouraged, it is nevertheless a way you might want to use to stretch out your credit period a little to give a little more breathing space before you m ake your payment.
Pay Bills In Full
All credit card bills should be paid in full when they fall due. This helps avoid the hefty interest charges that comes with credit card unpaid balances which can be as high as 18% per annum, in addition to penalty charges which will be imposed. This interest very quickly adds up and can sometimes lead to shocking debt within a very short time!
Under the recently introduced tiered interest system, late payment of your credit card bills affects your credit standing with the credit card company. This means you will have to pay the maximum interest charges of 18% per annum on your unpaid balances instead of a reduced interest of 15%.
Ask For Reduced Fees
The credit card environment is a highly competitive one with many companies pushing “free” credit cards without any annual fees attached to it. If you have a credit card that still charges annual fees, push for reduced or waived annual fees to save an additional RM100 in fees. If your credit card company is unwilling to waive them, consider signing up with a company that will offer you a credit card with no annual fees.
Don’t Spend More Than You Can Afford
It is very tempting to whip out your credit card at every sale or to pay for that beautiful and expensive handbag or pair of shoes. Interest-free installments offered by some retailers on high cost items such as facial packages and household furnishings make it even more convenient to put everything on your card. However, never bite off more than you can chew. When purchasing something with your card, always ensure that you can first afford it with your cash savings to avoid going into serious debt.
The credit card can be both an asset or a liability, depending on how you view and use it. Use it wisely and it might help you manage your expenses and cashflow better. However, use it wrongly and you might find yourself fighting a ballooning debt as the interest on it compounds.
Hence, be a smart credit card user and do share more tips!