[VIDEO] Credit Cards: What's so scary about them?
PUBLISHED 8 AUGUST 2018
Buy first, pay later. That's essentially how credit cards work. While it can be very convenient to just swipe away, credit cards may lead to more debt, especially if you don't pay on time. So, should you or should you not get a credit card? Find out more on this episode of RUMIT on the fundamentals of credit cards.
FULL TRANSCRIPT
Hello?
Hi, I’m Jazmin. I’m 22 and well, adulting – it’s been tough. Think you can help me adult?
[INTRO MUSIC]
“EPISODE #3: CREDIT CARDS”
JAZMIN SIEH | Host
True story: I was at the petrol station getting water – I don’t remember – when this man came up to me and said, “Hey, you look like a responsible adult. Wanna get a credit card?”
And guess what I did.
MOHD MAFRUKHIN | Manager Research, AKPK
But in our conversation, we are not really talking about the bad thing about credit cards, we’re actually balanced, right?
[MUSIC]
JAZMIN
Would you agree that it is a part of adulthood?
MOHD MAFRUKHIN
Two people of Gen Y, at least one would have a credit card. So it shows that it’s kind of normal. I used to have four credit cards, I have one credit card for now. One of the factors is actually banks are quite aggressive in doing promotions. You know, when we are youngsters, we go, “Okay, you know, just apply lah. Never mind lah if we don’t use, just apply lah.” If it’s not used, we don’t use lah kan?.
But when you have the credit card, it’s not easy to resist the temptation. You just swipe, it’s easy. If you’re not paying for the credit card, it will be accumulated because it’s a compounding interest.
The difference between a debit card and credit card is for debit cards, you need to have money in you bank account so that it can be used. It’s like a top-up. For credit cards, it’s considered as a loan. It’s a short-term loan anyway. You have a limit – the credit card will issue the payment first, then you pay to the credit card issuer with an interest.
Credit cards also give the consumer the flexibility of purchases. It also can give you rewards based on the points that you’ve earned from your purchases. If you use, for example, RM100, by the end of the statement date, you are required to pay only 5% minimum payment in the bill.
Before you want to have a credit card, you have to understand interest – its implications on the credit card and how it’s being calculated. I’ll give you an analogy, for example, like this: you have this jar full of water, this actually represents your credit card debts, meaning you pour out 5%. Then the credit card issuer will give 1.5% per month based on the total outstanding water in the jar. So it has increased again. So it’s like, when [are you going] to finish the debt?
So if you have [a jar full of water and], you take out all, you are debt-free.
JAZMIN
Oh it’s the card’s fault. Is it?
MOHD MAFRUKHIN
No, no, no. The card is not at fault. Whose fault? We. [Ours]
[MUSIC]
MOHD MAFRUKHIN
The key takeaway is the word ‘PASSION’. P-A-S-S-I-O-N. Okay? So ‘P’ is the purpose. Determine if your purpose is a need or a want.
‘A’ is affordability. Do some analysis, okay, take your income, list down all your expenses, look at your balance.
The first ‘S’ is actually shop around. Different credit card issuers have their different way of promotion. So you can simply get rewards, get the best deals.
The second ‘S’ is strategise. Did you know that if you use that credit card and you pay within a certain period, you enjoy interest-free. So leverage on that.
‘I’ is actually interest rate. You have to understand what are the financial charges on the credit card – annual fees, how much is the percentage – you have to know all that.
‘O’ means on time. You have to be very disciplined in making payments, you have to be on time.
And the final one, ‘N’ is actually nurture your card. Meaning, don’t simply give it to your boyfriend, don’t simply give away your pin number to anyone, you have to make the card’s privacy exclusive only to you. Nurture your card.
Emphasise on the first ‘P’, so go back to your purpose. As long as you can manage it, it’s okay.
[END]
CREDITS
