OWNING a credit card for the first time is, in a way, a big personal achievement. It means you've taken a big step in managing your personal finances.
The appeal of owning a credit card is understandable it can be both a convenient and efficient add-on when it comes to dealing with your finances. However, with so many cards available in the market today, where do you start? Or do you start at all?
There is some work to do before filling your wallet with “plactic money.”
Prior to applying for a credit card, it's important to know the type of spender that you are. P.S. Tan, 33, a self-confessed shopoholic, says that the main reason she got a card was to be able to indulge in what she loves doing best shop!
“With a credit card, I can shop as much as I can so long as I don't exceed my credit limit,” she enthuses, adding that she used to feel “deprived” before she owned a credit card.
“I used to get depressed because I couldn't afford the latest women's clothing and accessories. But with a credit card, I don't feel so limited,” says Tan.
Meanwhile, frugal P. Jeya, 44, says she applied for a credit card so as to be able to pay for big ticket items.
“These include, household stuff or my children's college fees, which had to be paid in a lump sum,” she says.
However, owning a credit card can sway a person's spending habit.
“After getting a credit card, I became a bit more of a spend-thrift,” says Razlan Hashim, 38, a bank officer.
“It's psychological. When you're not physically handling money or seeing it coming out of your wallet, spending tends to be a little bit more care-free,” he adds.
Razlan believes that people who had the tendency to overspend should not own credit cards.
“A credit card is useful if you can't use cash to pay for something or don't have the immediate cash to do so. But you should always ask yourself is it something that you want or is it something that you really need?
“Most of the time, you'll use your credit card on something that you don't necessarily need. It is better to save up the cash for something you want, than own a credit card and have a mounting bill and interest looming over your head.”
Owning a credit card also comes with added responsibilities, namely the need to better manage your finances and pay your bill on time.
Says Tan: “You can be a big spender or a small one. But what's important is how quickly or consistently you're going to repay your credit card debt.”
Razlan concurs: “Before you apply for a credit card, you need to ask yourself if you can shoulder the responsibility of settling your debts consistently and in a timely manner. Late payments or not paying off your credit in full means added interests incurred or even penalties.”
Individuals who have reached their credit limit but still want to continue spending end up applying for a second (or even a third!) credit card, which, if not properly managed, can create huge debt problems.
“We've all heard the horror stories of people with debt problems resorting to money-lenders,” says Razlan.
Of course, having a second credit card also means added annual service charges. However, Jeya notes that one can always waive the annual charges.
“I have two credit cards and have the annual charges for one of them waived. “I tend to use one card more often than the other and it came to a point when I wanted to terminate the one I seldom used.
“But since I was a long-time customer with the bank (of the credit card I wanted to discontinue), the bank was willing to waive the annual service charges.”
Alternatively, a bank is also willing to waive your annual service charges if the card is used regularly.
With so many products being offered by multiple institutions, it's always best to determine which bank offers incentives that best suit your needs and convenience.
“Certain banks offer credit cards with rebates or interest points for a type of leisure activity that you tend to indulge in quite often. Perhaps you can get good discounts at a shop or restaurant you frequently visit.
“Or if you're a frequent traveller, then maybe a particular bank offers points whenever you travel overseas,” says Razlan.
Jeya, who has been a credit card holder for over 15 years, says she chose a bank that had a nearby branch to ease settling her bill.
“Of course, today you can pay you credit card bills online. But back then, it was more common to go directly to a bank to settle your debts. Some banks had so few branches that it was so inconvenient.
“Before applying for a card, it's best to ask the people or speak to a professional to see what kind of incentives come with the credit card you intend to apply for,” says Jeya.