Plastic loan sharks...

[jeffooi]

NEW STRAITS TIMES
Monday, November 18, 2002

LETTER
<font size="+1">Interest rate of 18pc on credit cards way too steep</font>


I SYMPATHISE with the pensioner whose bank turned down his request for a credit card because he was considered not credit- worthy. He would really be better off without one. Banks that issue credit cards retain the right to grant or deny credit facilities to their clients.

Today, single card holders are a rarity. Many have at least two cards. Oversupply of credit is one of the major contributors to financial hardship among Malaysians.

In Australia, interest rates on credit cards vary accordingly. The median rate is 16 per cent per annum. Recently, cheap no-frills credit cards have hit the Aussie market. One bank offers a Mastercard with an interest rate of 9.73 per cent, 44 interest-free days and an annual fee of A$30 (RM63). St George Bank offers a rate of 10.99 per cent, 55 interest-free days and a fee of A$59.

In Malaysia, charges by banks are almost identical — 18 per cent per annum, 20 interest-free days and an annual fee ranging from RM100 to RM250. Why then is the disparity so apparent? Outdated laws and consumers' apathy may be the reasons why the credit card industry is flourishing.

Since the introduction of the reward programme in the mid-1990s, the trend has gained momentum. Banks today are outdoing one another in attracting new clients by offering better rewards. Cardholders need to amass as many points as possible, with each ringgit spent adding to the overall sum. So the urge to splurge, in order to garner points, becomes an obsession.

It is okay if you stick to your vow to pay in full within the interest-free period, as the interest cost is zero. If you fail to pay on time, or when you decide to pay just the minimum amount, the interest charges start to matter.

It is not uncommon to see holders running debts of thousands of ringgit, as they pinch from one card to pay the other.

One cardinal rule to be observed by all cardholders is never to draw cash using the cards. Besides the 1.5 per cent interest rate calculated on a daily basis, one has also to pay transaction charges.

The interest rate of 18 per cent is too steep. The 20 interest-free days are too short and the annual fee too high. People need to be educated on credit card spending. Consumer bodies and the Government, in particular, have a definitive role to play. Act before it is too late.

LT KOL (rtd) FATHOL ZAMAN BUKHARI
Ipoh


SOURCE:
http://www.nst.com.my/Current_News/NST/Monday/Letters/20021118084318/Article/

[edteam]

NEW STRAITS TIMES Business Times
Wednesday, November 27 2002

<font size="+1">Hazards of card-spending</font>
By JENNIFER JACOBS

...Pay up your credit card bill in full when it arrives in the post. At 18 per cent to 24 per cent in financing charges a year, a credit card debt is probably the most expensive debt you are going to have to hold.

Malaysia’s own financial conscience and author of “Millionaires Are From A Different Planet” and “The Millionaire In Me”, Azizi Ali, concurs wholeheartedly.

“Credit cards are dangerous things if you have no financial discipline. I am not saying don’t have a credit card. I think everyone should have at least one for the convenience it offers. But the main rule is to settle the amount you owe.

“When I speak at seminars, I often tell my audience that if they don’t think 18 per cent is a high price to pay for money, they don’t need to use their credit cards. They can come to me for credit and I will just charge them 17 per cent. It gets them thinking,” he added, with a laugh.

Financial planner Alfred Sek, who is executive director of Standard Financial Planner, ran into his own brand of trouble with credit cards. “When I was in my 30s, I thought that credit cards allowed for unlimited spending so I used my cards without keeping track of what I was spending.

“This went on for a while and suddenly one day, I got my bill and realised that I owed a huge amount. I was stunned. I sat down and tried to figure out how I was going to settle this.”

He employed a strict discipline on himself. “First I locked up all my cards in a drawer. There, they would stay until I had settled the entire outstanding balance. Next I worked out the maximum I could pay each month towards settling the amount. And in that time, I reined in my spending. If I could not afford to pay for something with cash, I would just go without.”

Any extra he earned, over and above his normal income, was also employed towards discharging his debt. In five months, Sek was in the clear. Then, he cautiously opened his drawer with the offending cards, destroyed all but two, one for personal expenses and the other for business expenses.

And having learnt his lesson, he was very careful with what he used the cards for. “Many people with credit cards break the fundamental law of living within your means, which is that income must exceed expenditure. It allows you to spend money you don’t have with the idea that you can take a few months to pay it off. But if you keep spending without check, this amount tends to balloon in a very short time.”

According to an article on USnews.com which appeared earlier this year, young consumers around the globe are far more comfortable with debt than their parents were. “And more critically, they have an appetite for spending that credit card companies, having sated the US market, would like to feed.”

Sek agreed that this was the case for Malaysia. More and more youngsters, who get cards as soon as they get their first job, go on a wild spending spree to the horror of parents who are used to counting every penny and considered debt, unless you were starting a business or buying a house, disgraceful.

In Hong Kong, a territory of 6.8 million people with 9.5 million credit cards in circulation at the end of June, personal bankruptcies have climbed sharply to 14,487 in the January to August period from 5,247 in the corresponding period the year before.

The article went on to say that some analysts attribute the sharp rise in personal bankruptcies to the bank themselves. “Despite mounting defaults, credit cards remain highly profitable and local lenders have been aggressively pushing consumer lending in a bid to offset weak demand and razor thin margins in their mortgage business.”

All financial planners advise restraint. Bose Dasan, a director at Standard Financial Planner said settling only the minimum 5 per cent required by credit card companies is crazy. “Think about it. If you just pay 5 per cent each time, it will take you 20 months to settle your debt. And this is just for one month’s worth of transactions.

“If you desire more things in life, you have to increase your means. Otherwise, live within your means. Unfortunately because of Madison Avenue (the advertising world of New York) and the desire to keep up with the Joneses’, many people keep extending their finances, which means they are in perennial trouble.”


FULL STORY:
http://www.btimes.com.my/Current_News/BTimes/Wednesday/Nation/20021127014224/Article/