19 Jan - 7 min read
Some people consider credit cards to be the ultimate blessing and some consider it to be the ultimate evil. In a time of emergency where you may need medical attention it may serve as the perfect savior, provided there is sufficient credit on the card.
At times, such as when you are standing in front of that gorgeous looking rose gold iPhone 6s and your phone is a little bit outdated with signs or hints it may be giving you issues, it will definitely be the most tempting devil to have a credit card. But how you negotiate such forks in the spending road is entirely up to you.
There is enough literature and fear mongering about the perils of credit use that we really needn’t go into it. We’re sure you’ve come across people who have at one time or the other, told you to look the other way where credit cards are concerned. For this article, we want to focus on how the prudent use of a credit card can actually be good for you.
A lot of people tend to think buying all their items with cash is always best. They feel it is safer to avoid any bank interest or disputes (if any arises) with their banks. There’s certainly nothing wrong with paying for your spending in cash but sometimes, having a credit card helps establish financial history for yourself with the banks.
In the view of financial institutions, it becomes difficult for them to evaluate a customer if they have no previous loans or a CCRIS (Central Credit Reference Information System) record.
An acquaintance of this writer, a young lawyer, wanted to take a mortgage. Despite being financially healthy in terms of her bank account, she was finding it a little difficult to get a direct approval on her mortgage. It was communicated to her that the banks found it somewhat suspicious that a young successful lawyer did not have a credit card and all sorts of other supporting documentation needed to be provided.
In cases where the bank is not satisfied with the information to approve the loan, they may grant a lower sum then what was being requested. In some scenarios the bank will ask for a guarantor or even a fixed deposit to be locked in for X number of years.
Many people feel that credit cards are the fastest way to rack up debt and with no doubt someone could easily lose control. However, it can also be a good, if not a great tool to track an individual’s spending. All your monthly statements would give you the perfect check and balance as they appear in full detail where you have spent your money, or in this case spent your credit. You then can do your planning and budgeting and probably even forecast your expenses for the coming months.
If you are working for a company that requires you to spend first and be reimbursed later; using a different credit card would make your claims process a whole lot simpler. You not only get to keep the rewards, it also avoids the hassle of separating the bills between personal and work/business expenses. Besides, do you really want your boss and finance lady seeing those embarrassing purchases you made online?
Travelling with a credit card could come in handy for all the unexpected deposits and charges at the hotels or for a car rental that may occur. When travelling abroad, most of us carry limited amounts of foreign currency. If you were travelling on a budget and had to unload a big chunk of it at the concierge desk for your accommodation, that could spoil your entire holiday’s itinerary.
Using your credit card to book your trip also gives you the advantage of having travel insurance included for your trip for free. Many credit cards automatically give you free but limited travel insurance coverage when you book your trip with the card. Although this may be of some use or help, in the case of emergency and you need immediate medical attention abroad, the credit card could be of help too.
Believe it or not, there are people who have forgotten to bring any foreign currency with them on trips as well. Some people keep it in the house in a “safe” place and completely forget to bring it along when they are leaving. In times of need, the withdrawal of a small amount of cash may come in extremely handy (do note that prior registration is sometimes required with the bank to be able to withdraw internationally; do check with your respective banks on their policies relating to overseas withdrawal).
Different cards have different types of benefits that you receive on your credit card. Generally speaking these cards give you a ‘reward’ when you spend your money using the cards. In today’s economic climate we need every little sen we can get back.
If you were to dine in a restaurant and paid cash that would be all the value you get. However, if you had the right credit card to use, you could earn some rewards in terms of points or cashback. On top of that, if the restaurant has tied in with selected banks, it would give you further discounts on the bill. That gives the customer two points of return rather than using cash which gives you nothing extra in return.
If you were to make a big purchase, costing MYR20,000, it would also be good to use your credit card on a purchase such as this. Rewards would be one benefit, but you could also convert this into an easy payment plan (Please refer to your respective bank’s terms and conditions for such plans). Breaking down the payments not only makes it more affordable, but allows you to do more with the cash you have in hand. If you would like to know more about Easy Payment Plans, do browse through one of our previous articles Easy Payment Plans in Malaysia Explained.
Example if you had MYR20,000 to pay for the furniture you wanted to buy, you could break down the payment into 12 months with 0% interest. This would add up to approximately MYR1,667 per month. You could reinvest a portion of the balance , say MYR10,000 in a short term fixed deposit and earn some interest in the meantime rather than pay off the full amount at one go. Granted the interest earned would not be much, but you get the idea on how you can play around with money to make more money.
Getting a credit card could be a daunting undertaking if not properly informed on how to manage it. If used wisely it could be one of the simplest yet most beneficial piece of plastic you could ever own.
To get a hold of your spending, try your utmost to practice conscious spending whenever you open your wallet.
If you think you are ready to get your first credit card or a few others to help you earn more targeted benefits; check out our credit card for lifestyle benefits page to find the best credit card for you.