Credit cards: Yay or Nay?

By Thong Jen Mee

A credit card can be your best friend or your worst enemy. With all the attractive plans out in the market, each claiming that they offer the best, are credit cards really that necessary? What are the advantages and disadvantages of owning one? How do I know whether I’m ready to undertake this responsibility?

This article has been simplified to a pros and cons list for those who don’t want to be cluttered with details. Read on to find out more.

Pros

Great for emergencies

Perhaps a beloved one passes away and the funeral is out of the country, or you find yourself having a medical emergency situation. These situations are often unforeseen and will most likely drop a financial bomb on you. Instead of being chased into a dead-end, you now have a safety net; your credit card.

Better shopping experience

Convenience is the key when it comes to purchasing goods and services. Credit cards provide all that so that the user would not be burdened with carrying a large amount of cash on hand. This will be especially useful in purchasing electronic gadgets or putting a down payment on certain items.

Not to mention, you’ll also be able to purchase goods as well as book flight tickets and hotel rooms online. The power of purchasing now lies literally in your fingertips.

Rewards and cashbacks

The concept is simple; the more you spend, the higher your reward points will be. Some credit cards offer a double bonus if you purchase certain brands, so always keep an eye open for deals. The points accumulated can be used to redeem a wide selection of benefits as well as gifts, although it is important to note that these points do have an expiration date.

For a cashback credit card, the terms and conditions may differ with different banks. It allows you to convert the amount of money you spent into rebates, which can be used to discount certain items.

Cons

Encourages the habit of overspending

The idea of (almost) unlimited spending is rather tempting, but a very dangerous one. If it’s easy enough for you to whip out your card as soon as something catches your eye, this could spell trouble in the future. You could easily accumulate a pile of debt with such habit, hence a strong will and sense of logic is necessary when it comes to purchases.

Wong Pik Ying, 22 is more than familiar with this situation. Having been through that herself in the past year, the hospitality student has learnt her lesson the hard way. “Being a compulsive shopaholic, I was ecstatic from the day I signed up for my very first credit card. I was literally looking for reasons to put that into use; be it from buying a second phone and eating out every day. I was really eager to get as much reward points as possible to offset my spending that I completely disregarded about the actual purchases themselves.”

When her monthly statement arrived, she initially thought there was an error because the amount spent was up to four figures. “I was terrified of confronting my parents with the bill, but who else can I turn to?” she admitted. Her parents were understandably furious at first, but eventually helped her repay off all her debts. After that traumatizing experience, Wong is now learning to keep track of her finances by keeping receipts and thinking twice before purchasing anything.

Interest rates

Credit cards often come with an interest rate depending on the type of card as well as the bank. Choose wisely by analyzing your purchases; are you a first-timer or you’re looking for something more flexible as you travel? Is the card only for emergencies or you foresee spending on a daily basis?

Late payments

Paying off your credit card debts late consistently will result in the accumulation of late fees imposed by the credit card company every month. If this goes on for a period of time, there is a possibility that the amount from the fees and interest charges alone would outweigh the value of your purchases. In the end, the bank might even block your credit card and demand for repayments to be made before you can resume its usage.

The key thing is to do your research and find out which bank offers the best rates; it’ll definitely come in handy in the long run. If you think you’re ready to take on this responsibility, by all means go ahead. All in all, keep this tip in mind. If you can’t afford paying it with cash, you most probably should not buy it. It’s as simple as that.