I have conducted several financial management classes online recently and when I talked about how to achieve financial freedom, I always get the response from the participants that we need to live beyond our means and cancel all credit cards. I was a bit shocked when I heard this response. Do we need to cancel all our credit cards?
Knowing debt is dangerous is a good sign. Survey carried out by AKPK mentioned that there are many Malaysians subscribing to their Debt Management Programme. This shows that many Malaysians are stuck in debts. So, in this article, I want to share with you the importance of credit cards and why do we need credit cards. In addition, how we can use our credit cards in a better way to help curb debts as well.
Credit cards are very useful in the following areas:-
- Credit cards can be used in the emergency event. There are emergency instances which we require bigger amount of money, so having 1-2 credit cards with us will help us solve the emergency issues. For example, if you have family member admitting into the hospital, most of the time, you need to pay an upfront amount before he / she is allowed to be admitted. In that situation, you cannot wait to withdraw your money from Fixed Deposits, investment, etc. You need the money fast, the credit cards become the choice.
- Credit card history is the easiest credit record to compile for banks. Credit card is considered as unsecured loan, hence, banks will rely quite a lot on credit card payment history to determine you creditworthiness. If you have good credit card payment history, this will help you to get good credit score as well. Good credit score can help you to get loan easily when you need a loan to purchase your property in the future.
- Credit card reward points / rebate. Most of the credit cards offer cash rebate or reward points when spending on it. In other words, you will get extra discount on your purchases while spending on credit cards. Save more when spent on credit cards, why not?
- Credit card cash advance promotion. If you are having good credit history, you will be offered for cash advance at super promotion rate. The cheapest rate that I have heard is less than 3% p.a. for 3 years. If you can use this cash to pay off some other loans, e.g. property loan which is at 3.15% – 3.5%, you are actually earning.
From the above, you can see that if you use the credit cards right, credit cards can bring you more benefits. However, if you are worried that you will over-spent using credit card, no worry, you can just use it on your monthly purchases and bill payments like internet bills, insurance payments, etc. Set an autopayment to pay off your credit card bills every month. In that case, it is unlikely that you will over use your credit cards. In this current era which the wealth grow is happening so fast, you must also learn to leverage on wealth creation. If you do not have good credit record, it is hard to leverage as the banks are unlikely to borrow people who have no credit history. Secured loan payment history is one thing, you need to have unsecured loan payment history to have better credit score too!
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