If you’re a Malaysian who's fresh out of college, there are three rites of financial passage that you might go through in the process of achieving adulthood: receiving your first pay slip, filing your first tax return, and getting your first credit card (in that specific order, we hope). Although that last one is not absolutely necessary, it does make life more convenient, and can even reward you if used wisely.
But, before you say yes to the first telemarketer who’s going to offer you a credit card with zero fees, wait! Committing to a credit card can greatly affect your financial standing in the long run, so make sure you are actually saving money instead of swiping your way to bankruptcy.
Here are seven things you need to know before getting your first credit card:
1. The interest rate is not charged at the end of the month
If you’re employed, it might seem natural to settle your bills at the end of the month since that’s when you get paid. However, the credit card billing cycle doesn’t work the same way, so always take note of your payment due date, which can change from month to month. You can typically find this information on the credit card statement online.
As long as you pay your debts in full before the payment due date, you won’t be charged with any interest.
2. You can stretch the payment date with a grace period
About 21 days before the payment due date, is the statement date (also called the 'closing date').
The statement date is when the card issuer adds up all of your transactions to the current billing cycle. Any transactions you made after that will be included in the next billing cycle. The gap between the statement date and payment due date is called the grace period, where you won’t be charged with interest.
Again, as long as you pay off your debts in full before the end of the billing cycle, you won’t have to pay anything extra.
3. But wait, you can stretch it out even more
With smart planning, you can stretch out the payment date even more.
Let’s say you need to get a laptop for your nephew and your statement date is on the 15th this month. What you can do is to buy the laptop on the 16th so it will be charged on the next billing cycle, then you’ll also have the grace period after next month’s statement date – in all, you have about 50 days to settle the payment. Congratulations, you've managed to optimise the system while being a responsible uncle/aunt!
4. You can get an installment with zero interest
Some credit cards offer a zero interest repayment plan where you can convert big-ticket items into zero-interest instalments. How does it work? Typically, the card issuer will have selected merchants that you can use this plan with, like a shopping mall or a brand. When you make purchases with these merchants, you can choose to convert that big transaction into smaller monthly bills on your credit card.
Make sure you read the fine print before signing up with one, especially regarding penalties for late payments – some plans might cancel your 0% interest benefit, or worse, even cancel the monthly payment altogether and charge the full amount in your next billing cycle.
So as you can see so far, all these conveniences do come with a price. That’s why we can’t stress enough on how important it is to be mindful of your spending, or else…
5. You might end up paying extra RM500++ a month!
“Always pay your debts in full” might sound like the most obvious advice, but let’s illustrate a scenario if you don’t do that…
Say that you have an outstanding balance of RM3500. Assuming that your credit card has a standard interest rate of 15%, you would be charged an extra RM525 on the next billing cycle! The full calculation is actually not this simple, but the point remains: if you keep carrying your outstanding balance to the following month, it’ll snowball to a point where you’ll be spending a fat amount of your paychecks on the interest alone.
To make matters worse, most credit cards increase their interest rates if you aren’t able to make the payment on time for more than a year.
6. Don’t do cash advance (it’s expensive)
Cash advance from a credit card is the literal meaning of “spending money that you don’t have”, because why else would you wanna withdraw from a credit card instead of from your savings account?
This facility usually charges a fee of around 5% of the amount withdrawn. You may also have to pay a higher interest rate on it, and you won’t get the benefit of a grace period.
7. Use specific rewards card for a specific type of spending
Many cards offer cash or point rewards on the specific type of purchases. This is also called as cash back, where you will get rewarded a percentage of your purchases (there’s also a cap limit, which most of us rakyat jelata don’t typically reach). As long as you’re responsible, you can own multiple cards for different purposes.
For example, you can have one card that gives you 1% cash back on all online transactions, another card that gives you 5% cash back on petrol purchased on weekends, and another card that gives you 2% cash back on groceries. Milk them all!
Always pay your debts in full!
It might seem like we’re just trying to meet an essay word count here, but we just can’t repeat the above advice enough. It’s the only way you’re going to benefit from using a credit card in the long run. If you aren’t able to do that, no amount of cash back could make up for it, not to mention that it will negatively affect your credit score for future life commitments.
Now that’s all cleared up, are you ready to choose your first credit card? Use Loanstreet's credit card comparison tool to pick the one that is tailored to your needs and lifestyle, with all the right rewards in all the right places. Happy hunting!