Credit Card: Buddy or Enemy?

Well yes, credit cards can be your faithful buddy, giving you lots and extra benefit you can imagine of or your worse enemy which make your life miserable until you regret having it at the first time. As to what I see personally and objectively, it really depends on what is your expectation on having them and how you use them.

Benefit of having credit cards: 

Convenience

• Credit cards save you time and trouble–no searching for an ATM or keeping cash on-hand, no fuss for a change.
• Easy and secure way to pay for internet shopping.
  

 

• To pay for something with a very high value such as expensive jewelleries.
• Credit cards are useful when travelling since they are widely accepted around the world.
• Credit cards are also useful in times of emergency. Sometimes emergencies (such as your car breaking down or flood or fire) may lead to a large purchase (like the need for a rental car or a motel room for several nights.)

But don’t be tempted to enlarge your buying power more than the money you have to pay it later on. Such habits can lead you to debt trap.

 

Extra Benefits 

In addition to the benefits listed above, some credit cards offer additional benefits, such as:

• Discounts from particular stores or companies
• Cash back on everyday purchases, including gas and groceries

• Airline frequent flier miles that can be redeemed for trips or to purchase trips at a discount
• Special insurances (like travel or life insurance.)

While most of these benefits are meant to encourage you to charge more money on your credit card (remember, credit card companies start making their money when you can’t afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.

 

Record keeping

Credit card statements can help you track your expenses. Save your receipts and check them against your monthly statement. Notify your credit card company right away if you spot any errors.

 

Cheap loan

You can buy what you need now and pay later on the credit card due date (16-20 days away after print date). The credit card company loan you for free interest during those days as long as you pay your due balance in full amount before or on the due date.

This can be a great help in managing your cash flow.

 

Purchase protection

Most credit card companies will handle disputes for you. If a merchant won’t take back a defective product, check with your credit card company. Credit cards may also offer you additional protection if something you have bought is lost, damaged, or stolen. Both your credit card statement (and the credit card company) can vouch for the fact that you have made a purchase if the original receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases.

 

Credit Cards Turn Out to be your worse enemies if you…

Blow Your Budget 

The biggest disadvantage of credit cards is that they encourage people to spend money that they don’t have.

Dislike Paperwork

 

You’ll need to save your receipts and check them against your statement each month. This is a good way to ensure that you haven’t been overcharged.

Trapped into a high cost loan

Your purchase will suddenly become much more expensive if you carry a balance or miss a payment. It’s important to remember that a credit card is a form of borrowing. You buy now and pay later – and there are risks.

 

If you don’t pay off your balance in full each month, you will start to rack up interest at a relatively high rate. Your debt can therefore quickly spiral out of control, particularly if you pay off only the minimum monthly amount.

 

Unaware of All Credit Card Fees

The interest rate is not the only cost of a credit card. Credit card fees are among others:

 

• Late charge

A fee will be charged if you are late making your monthly payment.

• Over limit fee

You’ll also pay a penalty if you exceed your credit limit.

• Interest charge

Interest will be charge on all your outstanding loan (if you don’t pay full amount on due date) started from the transaction date to the next print date. This is what people often miss to understand why the interest can rack up so high although they seems to miss out the due date for only couple days.

• Cash advance fee

And don’t be tempted to withdraw cash on your credit card. Most card firms charge a fee to withdraw cash from an ATM, typically about 2%. You will also start to rack up interest immediately as there is no interest-free period on cash withdrawals.

 

Got Fraud  

Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number (from a receipt, over the phone, or from a Web site) and use your card to rack up debts. The good news is that, unlike cash, if you realize your credit card or number has been stolen and you report it to your credit card company immediately, you will not be charged for any purchases that someone else has made. Even if you don’t realize your credit card number has been stolen (sometimes you might not know until you receive your monthly statement), most credit card companies don’t charge you or only charge a small fee,  even if the thief has charged millions Rupiah to your card. There are several things you can do to prevent credit card fraud:

• If you lose your card or wallet, report it to your credit card company immediately.
• Don’t loan your credit card to anyone and only give out your credit card information to trusted companies or Web sites.
• Check your statement closely at the end of each month to make sure all charges are yours.

 

Simple rules to use credit card safely:

• Keep track of all your purchases.
• Don’t spend outside your budget.
• Pay off your full outstanding balance on all of your credit cards before or on the due date
• Don’t loan your credit or give out your credit card information to anyone but reliable companies.
• Apply for credit card PIN. This will add safety instead of only signature.
• Many credit card companies offer payment due date reminders. Sign up for these reminders to avoid being charged a late fee.
• Don’t apply more credit cards than what you need. Don’t be tempted on the extra benefit, it’s not something that is essential. It’s the wrong reason to apply for one.

 

That’s all for now. Hope you can enjoy using your credit cards to suit your life style and minimize all the disadvantages and risks.

 

 

About The Author

With over 15 years experiences in banking, financial consulting and auditing, Joyce Cahyani provides valuable contribution in leading eDaun both business and finance team. In particular, she has an in-depth knowledge and experience of business intelligence in consumer banking industry, specializing in credit cards, retail banking, wealth management and personal loans in leading foreign banks such as Citibank N.A, PT Bank Internasional Indonesia Tbk., and PT Bank Commonwealth (2002 – 2011). She had also contributed substantial work as one of the team leaders in IBRA debt restructuring during Indonesian’s economic crisis 2000 – 2002. She started her career as a financial auditor in a big four public accountant firm, KPMG (1997 – 2000).