Monday, August 18, 2008

Credit Card Debt

Consumer Association of Penang (CAP) said the spending habits of Malaysians have changed and there are now many extravagant shoppers who are credit-card holders. This is a disturbing trend. It said about 2.7 million people have credit cards and a majority of them are youngsters. CAP opposes this system of spending first and paying later as it encourages people to spend more and accumulate debts.

The results of not paying this debt on time are you will be charged a late payment penalty and interest (at the very high rate of at least 18% p.a.) In no time debt accumulates. It’s a very similar situation with the loan shark arrangement except the bankers do not repaint your house and harass your spouse! Not now anyway! The other intangible liability is that your bad credit standing will be reported to credit rating agencies!

As at February 2008, Finance Minister reported that total loans via credit cards accounted for 3.5% of the total financing by banking institutions. Statistics showed that an average 30% of card holders settled their unpaid balances in full every month and almost 60% of the amount spent every month was settled by the following month.
(Me and wife are proud to belong to the 30% category. Hope that you are on my team!)

He added in 2007, only 2,764,085 applications or 49.7% of the 5,566,871 applications received by credit card issuers were approved. This low rate put to rest the misconception that the issuance of credit cards was casually done. (We thought so as we always get ‘harassed’ by the sales agents in the shopping malls)

The number of people declared bankrupt due to credit card debts for 2007 was 1,873 people compared with 1,656 in 2006 and 1,479 in 2005 and 1,397 people in 2004.

If you are in credit card debt, start paying the full amount. Negotiate with the banks to pay on installments and to waive some of the penalties. Then stop spending using the credit cards. Finally, cut the cards in half!

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