Credit cards: Let them be your slave and not the other way round!

Recently, I saw and heard a few cases of people owing money to banks due to overspending using credit cards instalment plans, paying minimum sum for credit card bills every month etc. All these can be avoided and should be avoided.

Credit card is like fire. Let it serve you and you are well. Let it climb over your head and you are doomed.

We should make our credit cards work for us and not the other way round. We should exploit discounts, cash rebates, freebies, rewards points offered by credit cards. But never, ever let the banks exploit us by charging us their ridiculous annual fees, late payment and interests.



1) Instalment Plans

Instalment Plans are in place to people feel and think that they can afford certain things when they actually cannot afford.

For instance, a person earning $3,000.00 with zero savings will not be able to afford a television priced at $5,000.00. He does not have the means to cough out $5,000.00 to pay for the television upfront. However, with instalment plans offered by merchants and banks, one can easily pay for the television by 12-months ($417.00 per month), 24-months ($209.00 per month) instalment plans.

Worse still, after purchasing the $5,000.00 television on 24-months instalment plan, the person finds that he still has room for more instalments! And he went on to purchase a new washing machine, a new stereo system etc etc. All on instalment plans! If his monthly instalment payment (assuming all are 24 months IPP) is $1,000.00 (around a third of his monthly salary), that means he had purchased $24,000.00 worth of goods! 8 times his monthly salary!

If this is not over-spending, then I do not know what is.

My advice is:
One should never make use of instalment plans offered by banks. Instalment plans are there to make you feel that the item is relatively "cheap" and "affordable". Instalment plans make you spend more than you can afford in actual dollars and cents.


2) Never use future money

Swipe your card for purchases that you know you already have the cash to pay for.  
Never depend on your next paycheck to pay for the current item that you want to buy. 

You swipe your credit card and not pay cash for the item, simply because you want to take advantage of the cash rebates/points earned for the purchase! You should never swipe your card because you have no money to pay for the item now and you have to wait for the next paycheck to pay for the item!



3) Pay your bills in full all the time

Always pay your bills in full and never ever pay the min sum and let the debt roll over. With typically 24% per annum interest charged on balance, this is almost the highest interest rates you could be paying your whole life! You will NEVER be able to pay up your debt if you just pay the minimum sum every month because you will be paying for the interest only most of the time!

Follow the above 3 rules and you will be safe!

Remember: credit cards should be our slave; we should not be the slaves of credit cards/banks!





Tags: bank, credit card, interest, annual fee, debt, roll over, instalment, installment, IPP, bills, future money,