Managing Credit Card Debts

---

NO one should be accumulating debt in an ideal situation but the Covid-19 pandemic has pummelled the economy. The lockdown has put business owners in a tight spot while workers are being laid off.

iMoney Group CEO Mitul Lakhani says, “There are ways credit cards can help people with cash flow such as providing emergency cash flow. Businesses or individuals needing cash for essential purchases can swipe for credit. However, be mindful when you are doing this, as a credit card is not a tool for you to spend what you cannot afford.”

Some credit cards offer rewards and cashback on spending. Consumers can take advantage of this by planning their grocery shopping or purchases of essential items so that the minimal spending required for rewards or cashbacks can be hit without unnecessary purchases.

Meanwhile, the rewards or cashback can be used to alleviate some of the burden from your credit card balance.

Know the financial aids and programmes available. For example, Bank Negara has introduced the option for credit card holders to convert their credit card balance into a term loan with 6-month moratorium with interest of up to 13% per annum. This option is available to consumers given certain conditions.

“Consider a balance transfer programme. Some banks allow you to transfer your existing credit card balance to another bank credit card at 0% interest for a set period. Or pay off your credit card balance with a low interest personal loan. Other than potentially saving on interest, you can also spread out the payments into a more manageable monthly amount.

“Do your research and compare credit cards that offer the best balance transfer programme or personal loan with the lowest interest rate through websites like iMoney before making a decision,” advises Lakhani.

Experian Credit & Information Services Malaysia CEO Dawn Lai says, “For individuals who are facing cash flow issues, they can consider reaching out to banks to discuss options available as many banks are offering lower interest rates if their cardholders take a fixed amount personal loan to draw down from their unutilised credit card limit. It usually comes with a fixed term repayment, such as over 12, 18, 24, 36 months or longer.”

Individuals however should take note that for these personal loans drawn down from their credit card limit, they need to continue to service the repayment timely as these do not fall under the loan moratorium and any delinquency in payment would affect their credit report which in turn affectsd their credit score or eligibility from getting further credit.

Experian has launched a complimentary three-month JagaMyID subscription so individuals can monitor their credit health (Central Credit Reference Information System, CCRIS, and credit score) during this period of hardship. More details can be found at www.mycreditinfo.com.my.

Lai observes that with the implementation of the Movement Control Order, credit card transaction volume has seemingly dropped. The retail sector’s performance for the first quarter of this year has underperformed significantly over the same period last year.

Most retail or social activities such as travel, shopping and dining have to come to a halt with everyone staying home and practising social distancing.

“In line with efforts to maintain social distance as well as the restricted movement, we see a rise in cashless payment methods including e-wallets, credit cards and debit cards. The rise in cashless payment amidst the pandemic is also widely encouraged by businesses including the food and beverage sector,” says Lakhani.

“Our advice on credit card usage is the same as ever – spend within your means and avoid debt you cannot foresee yourself repaying on time. On top of that, there is an extra need for users to be frugal in their spending given the current economic uncertainty – whether via credit card or other cashless forms of payment. We recommend consumers plan their spending around promos and cashbacks offered by the various payment methods and merchants,” he adds.

If you need help in staying disciplined, set a cap on your cashless spending and track every sen you are using so you won’t go over the cap. You may find budgeting tools or apps particularly useful for this, or even a good old Excel sheet or notepad.

Pay your credit card debts on time to avoid any late interest payment charge. “When their cash flow gets tight, paying the minimum amount of 5% would only be a short gap measure to help individuals to tide through a temporary cash flow squeeze.

“However, when individuals are facing a longer term financial hardship, paying only the minimum amount of the credit card debts every month will easily balloon their credit card debts into unmanageable debts with the compounded interest charged on it.

“In such a situation, it is best for the individuals to speak to their lenders to restructure their credit card debts into fixed term repayment plans with a monthly fixed instalment amount which they can afford to pay and commit to a payment schedule so they can pare down their debts,” advises Lai.

Meanwhile, University of Malaya senior lecturer in the department of finance and banking Dr Eric Koh says,” A credit card is, to paraphrase, a good servant but a bad master. While it is tempting to swipe or wave the card, we must exercise self-control.

“I do suspect credit card usage would be higher during the pandemic because people are making more online transactions and also find it more convenient to pay via cards rather than handling cash at long queues at the retail outlets. So, do buy only what you need and within your affordability level. Make a checklist and don’t buy too much unnecessarily.”

Some may suggest using a debit card instead so that you manage within your cash balances in the bank account. It’s also useful to get your bank to auto-pay your credit card statement balances every month.

“To the extent possible, pay off your statement rather than the tempting minimum balance because doing the latter will burden you with lots of interest charges. Besides, you may also check how you can sometimes use your points to partially offset your purchase costs or redeem some vouchers for the same purpose. Use your card in a disciplined, controlled and wise manner. Let it be your servant and don’t be enslaved by it,” says Koh.

Some people may want to have two credit cards just in case one system breaks down or one bank has some special offers with a particular retailer. “That’s fine as long as you remain the master, and not let the cards control you instead.

“Don’t have more cards than you can manage. That’s very dangerous because it’s hard to keep track and also it can be a slippery slope to overspending,” he adds.

---