Business: Learning to manage your credit cards

“Do I know how to use a credit card? You just hand it to the cashier whenever you want to buy something and sign the receipt.

“Make the minimum payment and don’t worry if you reach your credit limit. The company will probably raise your limit, and you are likely to get offers for more cards.” This is the approach millions have taken when using those little plastic cards.
However, this is costing many families dearly. With prices of goods and services going up and not the income, more and more Malaysians are forced to spend beyond their earnings.

Facts on credit card Let’s try to understand how the plastic card works. It provides you with a line of credit, which is the maximum you can charge to the card.

As you make purchases, the available credit line decreases.

When you receive your monthly statement, you p ay off the whole amount, or only the minimum amount due.

But many only pay the interest and the minimum amount of principal, thus never fully repaying the entire sum.

The spending trap For many, running up debt begins innocently enough.

When they are college stu - dents, many are given supplementar y cards by the parents.

There are just so many things that they “need” to buy and swipe the card at restaurants and pubs once too often.

With the implied promise of high-paying jobs, many students enter the credit world thinking their debt will be settled as quickly as it was acquired after graduation.

Many graduating students find reality to be different from their naive expectations, in which rising debt matches or exceeds rising incomes.

Adults, too, have also fallen for easy credit and unnecessary purchases.

People can also be sucked into credit card debt by unemployment.

With no savings, it’s so each to use the credit card to cover basic living expenses.

Settling credit card debt If you find yourself making interest payments every month on your credit cards, the first step is to assess your income and expenses.

Total your monthly expenses and subtract them from your income. This is your disposable income after expenses, and also the amount you have each month to use as you deter mine.

The next step is to stop charging items on your credit cards. Pay cash for items you must buy.

Then analyse your credit card debt. Determine which credit card issuers are charging the highest rate of interest.

You may be able to transfer balances from cards with higher rates to those offering lower rates.

Next, rank the cards in order of the interest rate charged. Use your disposable income to completely pay off the card with the highest rate.

Once that card is paid off, close the account and destroy the card. Then focus your attention on the next card, and do the same until all of the debt on your cards have been completely paid off.

Just use one or two cards and use them as a financial tool.

How to use a credit card , when properly used, is an extremely convenient tool.

The most important step in responsible credit card use is to pay off the bill every month.

Think of the credit card as using cash that is reserved each month for the items charged. With this method, no interest accrues and credit cards become legitimate plus helpful financial tools. They become our servants instead of the other way around.

Credit cards provide us with the added security and ease when shopping and travelling but we tend to misuse them.

Take, for example, the habit of making only the five per cent or RM50, whichever is higher, minimum payment each month.

On a RM10,000 balance with a credit card charging 18 per cent annually, it would take over seven years to pay off the amount owed.

Tips for handling credit cards wisely
¸• Remember that a credit card is not the same as free money
¸• Keep only one or two cards.

¸• Charge only what you can afford to pay back – avoid living beyond your means
• Shop around for the best interest rates, annual fees and service fees .

¸• Pay off the debt each month, or pay more than the minimum.

Source :www.nst.com.my