I got a call from my bank a a few days ago, informing me that I have an active bank account with them and that they were having a promotional offer for a zero interest rate credit card, for the first RM24,000 spent on it.
Now at first it sounded good, as I usually have a dislike for credit cards due to the fact that I will be charged interest on the amount of money owed to the bank ( If the amount is not cleared on time within say 28 days period). So when I heard it was interest free, I stopped my self from saying No, and I informed them that I needed to discuss with my husband first, and will confirm back again later. They person mentioned that this promotion was only valid for the next 3 months or so period, and made arrangements to call me back the next day.
Now just a bit of background, in our household only my husband has an active credit card, and I only had one previously that was used for work reasons as I needed a card back then when I had to travel overseas for business trips. Beyond that, I do not have any other credit cards under my name, and I had intended it to stay that way to keep our expenses in check.
After I ended the call, I went to find my husband who was in the kitchen then, and I told him about the offer from our bank. I asked him, how much was the interest rate on his current credit card that we use for our monthly payments, as we automated some of our monthly recurring payments on the card for convenience sake, example our insurances, home Internet, phone bills, car petrol etc.).
We also have another card that we had after opening a joint savings account ( we selected a high interest rate savings acocunt for this), and we use it for certain bills and grocery payments monthly to meet the conditions to get our high interest on the savings account payout. So there’s our 2 cards already.
He looked at me for a while and said he could not recall how much was the late payment interest fees charged to us. I was annoyed, as we had done the check on this topic some time back when I had asked this same question. Specifically at the end of last year I had asked to check these 2 things, which were when was the cut off date for monthly credit card payments, and what was the interest rate charged on outstanding bill.
Then I realized why he did not recall how much were the interest rates on these 2 cards. It’s because we do not think about it often, and why we do not think about it, is because we always always made sure to pay everything off on that credit card on time without delay, every month. It has been a routine we made for many years. Therefore, we do not accrue ANY interest from the bank on these 2 cards.
So I made up my mind there and then, to reply NO the next day when the bank calls me bank. I felt quite foolish for a while when I realized how easily I was persuaded to consider the option of having another credit card. Here’s why I decided to decline the card.
1. Why would I want to buy something up to RM24,000 that I did not have immediate cash on hand for?
What business do I have owing up to RM24,000 on my credit card? If I had the cash for it , I would just pay it with cash and not on credit. If I did not have the cash for it , I should not even consider purchasing it on the card, because if I did not have the cash, I cannot afford it.
Money owed is money owed, whether in cash or on unseen credit. If having a credit card makes you want to spend more on things that you usually don’t spend on, then it may be better NOT to have a credit card. Basically, to reduce temptation of buying more than I can afford, I’d stay away from having unnecessary credit cards.
2. Yearly subscription fees charged
Banks charge a yearly fee on having the card, regardless if you use it or not. At this point all I knew from the call was that there were no interest charged on the first RM24,000, but no mention on the yearly credit card subscription fee. There are also banks that do not have yearly subscription fees, you will need to inquire when you review for a credit card from selected banks, this would be a better option if you need to open up a new card.
3. Interest Rates charged on Outstanding amount
Another term for credit card interest rates is finance fee. A quick check online and the standard credit card interest rates in Malaysia are from 15% to 18% per annum. The outstanding amount due need to paid up monthly on time. Say a certain month if you managed to make partial repayments to the credit card bill, the remaining amount of the balance owed will still be charged with a lower interest rate usually at 5% of the total outstanding balance. Now the details of the credit card offer was not discussed in the call, so there possibly may have some other terms that came along with it. Of course if you pay everything on time, this should not be a concern. But if you forgot to pay on time, then you will be charged.
4. It is similar to a loan
My issue with the credit card is that you are able to use money that is not readily available in your bank account. Say you only have RM10,000 at the 15th of July, and you need to purchase something at RM15,000. You can, even though your salary has not been transfered in at the 28th of the month. It is literally borrowing money from a bank to make a payment when you do not have the cash, and then you owe the bank X amount of money which you need to pay back to the bank after. If you do not pay back on time , due to any unexpected reasons , then the interest will compound on your outstanding balance. Another thing to consider, is any late payments accumulated will impact on your CCRIS (Central Credit Reference Information System) records and make getting future loan approvals difficult.
Here’s some tips to follow to avoid making bad financial decisions on the whim.
1. Wait a day to think things through before making a decision.
And I mean decisions for things that matter, that have some weight on it ( not on whether to eat chicken or fish tomorrow). Especially if you are a impulsive person like me, it is best to just take some time and wait 24 hours before making a decision, and in that period of time , talk to your spouse or family and do some research. Ask yourself, why you would want to make that purchase or open up a credit card, is it necessary?
2. Use your spouse/family as an excuse.
I have a difficult time saying no to a sales person or promoter, as I do not want to hurt them and I am careful not to be too dismissive , unless they are being aggressive which makes me uncomfortable. They are just doing their job and it is their bread and butter. So when he called back, I said I had discussed the matter with my husband, and for financial reasons (which can be any reason but of course I did not specify the details ) I did not want to open a new card. It took a while for him to understand what I meant. Then he asked if I wanted to take up a personal loan . I also said no politely.
Now I do agree , that a credit card has its functions and in our case it is used for the convenience for payment automation or to use when we did not carry the cash on hand enough to pay for an outing, or to be used for certain online payment transactions. Apart from that we do use some benefits of the cash back and points redemption ( we redeemed a Panasonic blender end of last year when ours broke down, that was nice). In you need more information on credit card selection and the terms and conditions of owning one, do check it out on RinggitPlus which I found to be very useful.
Final note, if you are owning a credit card, just make sure that you are financially able to have it, and make a point to pay off all amount owed on the credit card bills consistently every month , on time before the cut off. Do make it a habit /routine to clear the bills on the same day every month. Then, you would not need to worry about interest rates, and you are in a financially safe position to own one.