Monday, October 23, 2006

Credit Boon and Bane

Credit Boon and Bane - cards are the bane of modern living, that is unless you can or have tamed this animal. Then it becomes a boon. Many people either realize it or pretend not to that it is a very very costly way of obtaining money to spend for the here and now.

When I first got my credit card bill, I paid only the minimum sum required. This is not because I had no money to settle the bill in full, just that it felt nice that I had the power of credit in my hands. And I think that is why people rack up huge credit card bills over time by just paying the minimum sum - a misplaced sense of pride and power. I often wonder, when I see a person whip out a wallet full of credit cards, if it shows the person is wealthy beyond imagination or if the person is not knee-deep in debt. If not in debt, that person is wasting money paying the bank card membership fees, which always works out to a net loss - to the card holder. Surely you don't think that banks are in the charity business?

The parties who has this real power are actually the banks who issued the card. They are the ones that make the money - a lot of it - out of our folly. That is why banks are falling over each other to give 2-year-free credit cards away. I've often said that the interest charge on the credit is just not worth the false sense of financial power that one pretends to possess.

So after I received my second bill, I sheepishly paid up the entire bill, including interest charges. I have never lived on credit card debt ever since, except the portion that the bank advances for the first 55 days, interest-free. By settling my credit card fully every month, I ensure that the debt demon will never come near me. That's how you make the credit card work for you and not against you.

Read: Credit card payments: Can consumers handle the minimum?

1 comment :

Anonymous said...

The problem is partly due to the lack of financial and economic literacy today. I think we could teach a lot more of this in schools.

Especially since the errors that arise from financial ignorance are not just one person's problem. They impact on everybody in society.