Almost every working adult owns a credit card. Whether it's just for the convenience, or to stretch to the larger purchases you wouldn’t usually be able to afford, a credit card can be quite the little helper. These days Malaysian banks throw in other goodies to reward you for using your credit card such as cashback, reward points and promotions. And, of course, they're great for online shopping too.
However, credit cards are not all rainbows and cupcakes. Just like a rose with untrimmed thorns, it could cut you. Here are 5 credit card traps that could bleed your finances dry.
Credit cards provide us with the option of making minimum payments on our monthly statement. Whilst this may seem like relief, it really is just helping you pay more interest and carrying your debt for longer than necessary. It will take years for you to pay off a small debt.
In the long run, the so called peace-of-mind you get from only forking out a small sum at the end of the month will snowball into a huge debt total before you know it. Pay off as much as you can and endeavour to do so as quickly as possible.
Interest rates vary between credit cards. It's normally the first thing you look for when you're researching credit cards - how much it will cost you to borrow. A common mistake is not keeping track of the interest rates you're charged once your new credit card comes through. The bank won’t always send you a separate notification when increasing your interest rate so if you don’t take the time to go through your itemised bill and the stuff that comes with it – you may miss the rate change altogether.
Pay attention to penalties that cause interest rates to spike such as late payment twice a year. Ensure you do not fall foul of these rules and if you really can't be bothered to read that bill you'll find all the up-to-date interest rates in our credit card listings.
Balance transfers help those struggling to pay card bills every month. You can transfer your existing credit card debts to a new card and enjoy an introductory interest rate offer, some as low as 0% for the first six months. Sounds great doesn't it?
Well it is great, but the mistake a lot of people make is to get their new credit card with its freshly transferred balance and then go on a shopping spree. The last thing you want to do with a balance transfer credit card is use it! Get that balance paid off as quick as you can whilst you're not being charged interest. Remember that any new spending on the card will attract the full interest rate - up to 18%!
Charges for overseas use
Traveling overseas on holiday or business? You're going to need a credit card - without a doubt it's one of the safest ways to pay for hotels, flights and emergencies. Most credit cards even give you free travel insurance when use them to book your tickets. So what are the pitfalls?
Always be aware that using your card overseas will cost you extra in charges. For most it’s in the region of 1% on top of the already expensive bank exchange rate. Withdrawing money from an ATM in a foreign country will usually attract an extra fee of about RM10. That can soon add up if you're going to the money machine every time you want to do some shopping.
A cash advance is essentially a loan funded from the available credit on a credit card account. Cash advances are helpful when you urgently need cash - simply go to the ATM, punch in your PIN and fill up your wallet. But beware of the interest rate. Pretty much every credit card in Malaysia will charge you 18% interest on cash withdrawals.
Generally, using the cash advance option is expensive, it is always cheaper to swipe and buy.
Your credit card really can be your best financial friend - but if you aren’t careful, it can be your worst enemy too. Follow our advice and you'll be avoiding some of the most common mistakes that people make when they get hold of a new charge card. Always remember, your credit limit is money made available to you for borrowing, not cash in your account.
Picture courtesy of Creditcardstipsblog.com