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Friday, 20 February 2009

Credit Card : Boon or Bane?

What is your opinion on credit card?

Is it convenience? Flexibility to buy something now and pay later? A hassle because you can't track what you spent?

A lady I spoke to is dead against credit cards. She feels that credit cards deal a lot of damage to the financial health of a lot of people, namely youngsters who just came out to the working world. She is a bit on the wiser side of the age ruler but what she said bears truth.

In this current financial fiasco, if you do not handle your spending well, you could be in trouble.

Credit card allows you to buy something now and pay 30 days later but if you don't pay the full amount by the due date, the interest rate is exorbitant. And although the government has reduced the interest rate on credit cards, it's still about 13.5% p.a. Banks usually don't put the p.a interest rate visibly :P They just publish the 1.3% p.m (per month) rate. Which seem little but is actually not when compounded.

A lot of people I know, just swipe their cards and pay the minimum by month end. By paying the minimum, there's no 'penalty' from the bank and they can still use their cards but they usually don't realize the interest charged to them the following month. And if you continue to pay the minimum each consecutive month, you'll soon realize you're just serving the interest.

On the other hand, credit card provides convenience and I think safety. I like using credit card for numerous reasons. It's convenient because I can use it almost anywhere. I feel safer because I don't carry a lot of cash on me. It's flexible if I need to purchase something on installment (usually I search for those with 0% installment plan lah). And I get to enjoy the item first and pay only 30 days later! Ain't that cool? :)

I think the bottomline is that people need to be educated on using credit cards and how having one doesn't mean you can literally live on credit. If you don't have the money to pay by month end, please don't just swipe your card. You'll be living on borrowed money and that's why the whole world is suffering from financial meltdown. A lot of us has been living on borrowed money. Money we have not yet earned.

It's easy to swipe the card. And it feels good to buy, buy, buy. But we need to have control, no?

For me, I know how much a month I can spend. And yes, I use my credit card when doing so. But because I know my budget, I tend not to overspend. Using the credit card gives me points that I can accumulate and exchange for something when I have enough points. So, it's a good thing!

I get to enjoy my item first, collect points and redeem something else in the future!

So, for all the misuse of credit cards, I believe that it is also a good medium. It probably was design with goodness in mind but well, we humans tend to misuse goodness.... Like morphine. It was discovered to relief pain but humans use it to get 'high'.

The ball is in your court. Take control of your own financial health :)


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