Cheaper Credit Card Debt: What You Should Know And Ignore

Here's a piece of good news for Malaysians with credit card debt! The Central Bank of Malaysia have just declared that interest rates for credit cards will be reduced by 0.5 to 1.5% for credit cardholders, while late payment fees will be slashed to a minimum of RM5 and a max of RM75 (against previous fees of RM10 or 1% of total outstanding balance subject to a maximum of RM100) effective from 31 Mar 2009.

To recap, Tier I being cardholders who pay at least the minimum amount promptly over 12 consecutive months, will now pay 13.5% in annual interest, from the present 15%. Tier II being cardholders who pay at least the minimum amount promptly over 10 consecutive months, will now pay 16% in annual interest, from the present 17%. Finally, Tier-III cardholders who do not meet the above criteria will have a minimal reduction of 0.5% from the present 18%.

The reduction in interest rates should give rise to savings for credit cardholders. However, i believe this is merely an act of reducing potential debt default (in view of the economic slowdown or possible recession) instead of increasing consumer spending, as consumers face the likelihood of reduced income or income uncertainties due to job losses and business slowdown.

Nevertheless, the silver lining to this is that nobody should use the credit card as a form of borrowing due to the extreme high cost of financing. It is advisable to pay off such credit debts with lower cost of financing such as personal loan, property loan refinancing or make use of tools such as credit balance transfer to another credit card with much lower cost of financing.

Avoid credit card debt!