David, a 49-year old father of three, lives in Kuala Lumpur. He holds a high position in the Management of a large corporation in the city and his income is more than RM 90,000 every year. He lives a lavish life – driving luxurious cars, dining in expensive restaurants, living in an upscale area, and sending his children to expensive private schools.
On the surface, it seemed like David’s family led a great lifestyle, filled with many international vacations and expensive materials. However, in addition to the family’s impressive collection of expensive assets, they have a less impressive collection of credit card debts; a total of RM 60,000.
A few months ago, David tried applying for a housing loan to purchase another house to add to his list of assets. The application was unfortunately rejected due to a poor credit rating resulting from late bill payments.
He decided to come to AKPK to get some advice on resolving his financial position. Firstly, the counselor advised him to stop using his credit cards. He was also advised to practice discipline when using his credit cards and to live within his means. He was reminded that the more he uses his credit cards, the more debt he takes on.
David also shared that he never checked through his five credit card statements, he simply paid the minimum 5% amount required by the banks and moved on assuming everything was in order. He was advised against this practice because this will lead to him not knowing how much his debts actually are.
He figured that he could pay off half of the outstanding right away and by doing this, he could eliminate about half of his credit card debt. He was given a budget he could work with to settle his credit card debts within a year due to his high income.
On the surface, it seemed like David’s family led a great lifestyle, filled with many international vacations and expensive materials. However, in addition to the family’s impressive collection of expensive assets, they have a less impressive collection of credit card debts; a total of RM 60,000.
A few months ago, David tried applying for a housing loan to purchase another house to add to his list of assets. The application was unfortunately rejected due to a poor credit rating resulting from late bill payments.
He decided to come to AKPK to get some advice on resolving his financial position. Firstly, the counselor advised him to stop using his credit cards. He was also advised to practice discipline when using his credit cards and to live within his means. He was reminded that the more he uses his credit cards, the more debt he takes on.
David also shared that he never checked through his five credit card statements, he simply paid the minimum 5% amount required by the banks and moved on assuming everything was in order. He was advised against this practice because this will lead to him not knowing how much his debts actually are.
He figured that he could pay off half of the outstanding right away and by doing this, he could eliminate about half of his credit card debt. He was given a budget he could work with to settle his credit card debts within a year due to his high income.
In addition to this, he also realized that his expensive “assets” would not be able to help him through his financial position and promised to make changes to his lifestyle to avoid getting into more debt. David was thankful for the guidance given by AKPK’s counselors and commented that if he had been equipped with knowledge on managing his personal finances earlier, he would not have been in debt now.
Source of this story: http://www.akpk.org.my/learning/success-stories/id/1005/story-42
A credit card is a great financial tool. However, it controls and destroys you when you are unable to manage it properly. Be smart and avoid these 10 things:
1. Incurring debt: Yes, a credit card gives you credit. It is only temporary and you have to pay the outstanding amount when the statement arrives. When you do not pay or delay payment, hefty interest will be added. The amount snowballs with compound interest the longer you postpone your payment.
2. Paying the minimum: Always pay promptly and fully to avoid interest charges. While you are paying the minimum at the same time you are also adding more charges to your credit card account and the outstanding amount will become a much bigger sum. Over time paying the minimum amount may be beyond your financial means.
3. Using it when you are already broke: When the time is bad, more people use credit cards to charge their daily expenses. It is bad because you are already running short of cash and it is unlikely for you to pay what you owed. You will end up as a bankrupt.
4. Ignoring the monthly statements: Look closely at the monthly statement to spot any fraudulent charges, do not just pay without matching all charges with your charge slips.
5. Getting cash advances: It is another no-no because it attracts a cash advance fee and also interest on the amount advanced.
6. Paying for an annual fee: Get a card that is free for life. It is foolish to pay for the use of credit cards.
7. Paying late: Pay promptly to avoid interest charges. Make it a habit to pay when you receive the monthly statement.
8. Spending almost reaching the credit limit: As a general rule, you do not use more than 30% of available credit. It affects your credit score adversely. It is also likely that too large an amount can be out of your control.
9. Spending just to earn rewards points: It is another silly thing to do by charging more and spend unnecessarily just to earn reward points. Use your cards only when you need to.
10. Spending more than you can afford: Avoid impulse spending to break your budget. Live within your means is a golden financial rule to stay away from debt and misery.
Are you making these credit card mistakes?
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