I am sure some of you have heard this before....that credit card is bad for you and all it does is to encourage unnecessary spending! Afterall, it is so easy to just sign away your credit card on the dotted slips without any real money going out! For some people, they even use credit card as a debt instrument, meaning they will settle the minimum amount on the outstanding balance every month (because the rule was set by the Banks!) and pay back the outstanding card balance over "installments"! This is an extremely bad practice as you will soon realize that the real value of your money deteriorates very quickly, due to the fact that credit card companies charge very high interests per annum (eg., 18% in Malaysia) for the outstanding balance amount! In fact, this is worse off than borrowing money through personal loan or overdraft!
So, does that mean that credit card is bad and you should start discarding all your cards and pay everything in cash? Of course NOT. Credit card is good as long as a person uses it appropriately. Here are the major benefits:
- earn reward points for free product redemption (this is the obvious! However, bear in mind that you probably have to spend 5-figure sum in order to earn a free toaster!)
- defer your payment (and earn interest savings with your money elsewhere)
- you don't have to bring loads of cash in the pocket and risk losing them especially if you are buying a big ticket item
- loads of incentives offered by credit card companies such as interest-free installments, balance transfer, collateral free personal loan, etc.
