Credit Card Debt
The Star Malaysia recently did an article on the increasing number of graduates declaring bankruptcy due to credit card debt, with statistics showing that there was a 40% increase in the number of bankrupts every five years.
Thats right, 40%.
Although these aren’t stats from Singapore, its incredulous to think that there isn’t a more concerted effort to educate consumers about the dangers of credit cards. Maybe like those cigarette packs with explicit pictures on them, credit cards should come with clear warning labels as well.
Some things to take note of if you own a credit card.
1)Credit card charges
Raise your hand if you know the different interest charge/late payment of each card that you own.
My UOB and Standard Chartered credit card charges a fixed late payment of about $60 and the last time I checked DBS still charged 24% of the total amount.
Suddenly the 10% discount off those cute kitten heels doesn’t seem worth it huh? Thats 14% more expensive thant the off the rack price.
You end up paying more if you dont make sure u pay your card in full. Everytime.
2)Credit Card Debt
Theres just something about that credit card limit that makes you imagine your bank account as a beautiful, sparking pool with a bottomless pitt. But beware, all that glitters is not gold.
Even more so when each month, you just add on to the amount you owe the bank, even if you do not spend, because interest /late charges are based on total amount owed.
Sooner or later, you’ll wonder why on earth you charged those items to your card, especially since you know its a debt that will go on forever and ever. Talk about sucking the life (money)out of you, even the bad guys in Twilight would be proud.
3)Breaking it up
No I’m not telling you to cut up your cards,with some self restraint it would be alright. But since we’re on the topic of self restraint, let debate the installment payment plan for big shopping purchases that some banks issues. A $3000 LV handbag might be out of reach, but not that far since banks now allow you to cut up the purchase price to a few easy payments. Suddenly the dark clouds clear and the rainbow shines though, its finally affordable!
A different story if you’ve been saving up for it, not so smart when its on impulse and you’re stuck with an extra amount to clear each month.
4)Downward debt cycle spiral
Credit Cards have a way of making you feel rich when in reality, you are so broke you cant even draw out cash from the ATM. I’ve been there, where, ironically at the end of the month, when I cant even afford a plate of Mee Goreng (fried noodles), I eat better because I’d need to go to a restaurant and pay via credit card. Swensens, Fish and Co and Pizza Hut suddenly become my go-to best friend.
Not so bad for the palate (cant say the same for the flabs) but not so good for my bank account.
It may seem harmless, especially since i’d have the money to pay for it when my salary comes in next month, but what you (by you I mean me) dont realize is that it adds up. This is expenditure which I don’t really need, purchases which doesn’t enrich the closet, the bank account or especially the investment account. The money could be put to much better use, like making generate more money via investments.
The solution?Budgeting or pacing myself at the beginning of the month.
Credit Cards, Yay or Nay?
It might not be all bad. I mean, the points collected and the vouchers you can exchange it for adds to the pocket than deducting from it.
It all boils down to your usage and awareness of the existing downward debt spiral that it can bring you to.
Use it wisely, but always, always pay your bills in full. The 24%/$60 late charge is never worth it.