No matter which credit card you use to cover your expenses, the fact that you have it means you run the risk of being in debt if you do not use it responsibly. A little mindless spending here and there or a missed payment will make matters worse.
As you begin to accumulate credit card debt, you should also be prepared to make many lifestyle changes to pay it all off.
Remember, credit cards come with high interest charges that compound with time. And a considerable credit card debt has the potential to not just sink your finances and cause stress but also impact your credit score.
A little caution, however, can go a long way in helping you avoid this in the first place.
Here is the final part of the 10 tips to steer clear of credit card debt.
Tip 6: Weigh pros and cons before doing a credit card balance transfer
If you’re dealing with a substantially high outstanding balance on your credit card, a good way to make the repayments more affordable is to opt for a balance transfer.
But this option only makes sense if you’re going to get cheaper repayments because of a lower interest rate. Plus, an interest-free period to repay the debt on the new credit card can act as a plus.
Here are some pro-tips related to credit card balance transfers:
• A balance transfer doesn’t reduce debt. It may bring down the interest component and give you some extra time to repay the credit card due. Go for it only if you can repay the debt in full.
• A balance transfer may include additional fees.
• The new credit card needs to have a substantial credit limit to accommodate your debt.
• You’ll still need a good credit score to apply for a new credit card to transfer debt.
• Do not use your old credit card and add more debt once its balance is transferred to a new credit card.
• Always consult your credit card issuer before triggering a balance transfer to a new card.
• Click here to know more about credit card balance transfers and the different options in Malaysia.
Tip 7: Your credit card isn’t an ATM
As convenient as it is to use your credit card to withdraw cash in case of an emergency, cash advances can really stack up into an enormous amount of interest in no time.
In Malaysia, the daily interest for the cash advance facility in most cards is 18%.
So, there’s no doubt that you’ll be left to repay quite a bit of money back. A good way to avoid using your credit card for financial emergencies is to save and set up a fund for a “rainy day”.
Tip 8: Avoid using multiple credit cards if you cannot afford them
Well, it makes sense to use different credit cards for different things (cashback card for groceries, air miles card for travel expenses etc) in order to maximise the value of your spends.
But only if you can afford to maintain them all – repay all their dues, pay annual fees, meet spending requirements to avail desired benefits etc.
If you can’t, having multiple credit cards in your wallet will further complicate the debt problem and dent your credit score.
Go for multiple credit cards only if you have a proper reason to use each one of them and can afford them all.
Otherwise, it’s safer to use only one credit card that’s in line with your spending patterns and lifestyle requirements.
Tip 9: Never hand out your credit card to anyone
As much as you love your family and friends, don’t ever lend your credit card to anyone for any reason.
While you may have the requisite level of self-control to keep your spends to a minimum, the same can’t be said for whoever you’re handing out your card to.
If your expenses stack up because someone else is using your credit card, you only have yourself to blame.
Tip 10: Read a card’s fine print thoroughly before signing up for one
Going through your credit card agreement as well as the terms and conditions can make for an extremely boring session. But, this will definitely help in understanding how your card works.
• What’s the annual fee of your credit card? What are the benefits of paying it? How easily can it be waived?
• How affordable are the spending requirements to get the desired benefits like cashback?
• How can you earn rewards points? What are the eligible spends? What can you redeem them for? How easily can you redeem them? When do the points expire?
• What’s the air miles conversion rate if its a travel credit card? What are the options when it comes to partnering Frequent Flyer Programmes? What are the other perks and privileges?
• What are interest charges and late payment fees of your credit card?
• What’s the markup fees for overseas transactions charged to the card?
This article first appeared in BBazaar.my
BBazaar Malaysia (BBazaar.my) is part of BankBazaar International, the world’s leading neutral online marketplace that helps people decide on financial products such as insurance, credit cards, fixed deposits, saving accounts, mutual funds and many more.