When not to use your credit card Saturday, 27 June 2015 By: EUGENE MAHALINGAM
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When not to use your credit card Saturday, 27 June 2015 By: EUGENE MAHALINGAM
When not to use your credit card
Saturday, 27 June 2015By: EUGENE MAHALINGAM
Using them in some situations such as for paying hospital bills can be detrimental
IN the absence of cash, using a credit card can be an useful alternative.
However, there are certain situations where using a credit card is considered a no-no. The following are some scenarios where cash is preferred.
Buying property
Many people actually use their credit cards when they place their downpayment for properties that they buy, says licensed financial adviser and syariah financial advisory for Excellentte Consultancy Jeremy Tan.
“Never use it for downpayment for purchase of a property. For example, the difference between the mortgage amount and the purchase price of the property. This is the trend nowadays,” he tells StarBizweek.
“This is because the finance charge for servicing and leverage on this mode of payment is high, if payment is not made in full, after it has been used to make the payment. A person will have to contend with payments of both the monthly credit card payment servicing and the mortgage payment. This is poor financial planning.”
Investments
Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui believes it’s a bad idea to use your credit card to pay for investments, especially long-term ones.
“Some people use personal loans to pay for property downpayments, for instance, However, when they cannot support this, they use their credit card to roll the payment.
“Using short-term credit to finance long-term investments is a disaster,” he says.
Yap says one should just avoid the whole situation completely.
“No matter how promising it might sound, avoid using your credit card.”
Hospital bills
Creditnet.com’s Jason Bushey in his article “Three Things You Should Never Pay For with a Credit Card (and One You Always Should),” says one should not put their hospital bills on a credit card.
“Medical bills are expensive as it is; the last thing you want to do is add high interest fees to those bills, too. He notes that credit card rates are just too high to include a hospital bill, which could take a while to sort out.
According to online personal finance website, iMoney.my, credit card issuers in Malaysia adopt a tiered system when it comes to the interest rates for credit cards.
“Generally, you will be charged a higher interest rate should you display a history of inconsistent repayments, and a lower interest rate for a history of prompt repayments.
“In Malaysia, credit card interest rates is between 13.5% and 17.5% per annum. Some card issuers may also have higher or lower interest rates depending on their operating policies,” it says.
Online gaming / trading activities
Tan feels that one should never credit cards for payment of services for online gaming or trading activities.
“This is because access to credit is easy and immediate. Irrationality may overtake the original intention which may give rise to mounting debts, at times in a short span of time, without realising one’s capacity to repay.
“Finance charges for servicing unexpected debts can be hefty,” he says.
Student expenses
Bushey notes that student debt can be brutal, adding that student loan interest rates are however a lot lower than the average credit card interest rate.
“So it’s highly recommended that you don’t charge off some or all of that student loan payment since, ultimately, you’ll end up paying a lot more in the long run.”
Citing CNN Money, he adds: “The average yearly cost to attend a public university is US$22,261 (RM66,783). Add 15% in interest to that and that’s another US$3,300 (RM12,540)!”
Wedding expenses
Your wedding ceremony should never be an item on your credit card bill, says Tan.
“It is not good to incur debts especially on your wedding if you cannot afford it. Financial management for a couple is of the utmost importance in a married couple’s journey, especially in the beginning.
“It is a double-edged sword, as it will either make the marriage or break the marriage,” he says.
Bushey concurs that it’s not a good idea to finance your wedding using a credit card.
“Unless you’ve got a feeling your wedding gift-pile will be something akin to Henry Hill’s in Goodfellas (namely a pile of envelopes stuffed with cash), then it’s probably a good idea to scale back that dream wedding you had in mind to something more manageable.
“Getting hitched is a celebration of love, not luxury. Stay within your means when planning your wedding and you’ll be more likely to enjoy your party.”
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