Skin Deco

Thursday, September 30, 2010

Beauty Budgeting Chp. 11: Don't Go Plastic Fantastic

Let's talk about that piece of PVC with the capabilities of causing bankruptcies, broken families and suicides.

How many times have you heard yourself saying:

"I'm getting my pay next month. I can pay it off!"
"But there's a 5% discount if I buy with my card."

"I'll pay the minimum first and when I get my bonus, I'll pay off everything."

"It's an emergency! It's the last one!"

What was the worse excuse you've given yourself to justify using your credit card when you shouldn't have?

Let's take a look at the reality of credit cards.

Reasoning: "I'm getting my pay next month. I can pay it off!"
Reality: Car breaks down next month and the extra from your pay goes to the mechanic.

Reasoning: "But there's a 5% discount if I buy with my card."
Reality: You can't pay up promptly an there's a penalty, your outstanding balance increases, so does the interest rate. How much was your discount again? RM5?

Reasoning: "I'll pay the minimum first and when I get my bonus, I'll pay off everything."
Reality: And when you get your bonus, you sign for a holiday to Hong Kong.

Reasoning: "It's an emergency! It's the last one!"
Reality: I understand that the palette is limited edition but it's not a matter of life and death. If you don't have the money to buy it, don't. If you wanted it so bad, you should've saved up for it. Try "My dog's sick and needs surgery" instead.

Personally, I own two Platinum cards and I don't need to be cutting them up in order to control myself. We're humans and we're gifted to have self-control, which is what prevents (some of) us from hacking that-bitch-who-stole-my-boyfriend to death. Besides, if you cut up a card, it doesn't mean that your card has been terminated. You can simply call up the bank, report it missing and get a new card within a few days. Don't forget the RM12 charge.

Money on credit is money that you don't have. It's borrowed money. How would you like to borrow money from your friends and family every time you shop? Unless of course, you have no shame. You'd prefer to borrow money from a stranger, right? And hope that you never see that person again so you won't have to pay them back? Sorry, honey. The bank's closer to you than you think and they're most definitely less forgiving than family members.

The credit card is not completely evil. It does come in handy for many situations -- purchasing air tickets online, avoid carrying a lot of money when you have to make a big purchase or travel, real emergencies, etc. For those reasons, you're using the credit card for its convenience. That's what the credit card is essentially for.

Here are a few suggestions on how you can control your credit card spending:
  1. Don't own a credit card. Live on cash terms. You don't really need a credit card. Even if you do, don't make a habit out of paying with your card when you have the cash. You may not feel it now but you'll most definitely feel it later on.
  2. If you need a credit card, you can get someone to subsidize one for you so that the principle will always know of your spending. And trust me, when it goes overboard, the principle will hunt you down.
  3. Set a realistic limit to your card. For most cards, you can get the bank to set a credit limit for your card so that it'll act as a reminder if you're about to overspend.
  4. Before you spend on credit, make sure that you already have the cash to pay back. In instances like purchasing air tickets, it's easier to use a credit card but if you don't have the money in hand for the ticket, you probably shouldn't be buying it in the first place. Real emergencies aside.
  5. Put that cash aside for when you need to pay back. Some banks allow you to pay through auto-deduction from your bank account so make sure you have enough in your bank account and avoid from spending more that you have. If you're about to spend more than you have, make sure to deposit the difference into your account before the due date for payment.
Ultimately, the best way to not be a slave to your card is to understand the consequences of being in debt.

Growing up, I was a rather privileged child, enjoying spa treatments in places fancy enough to have elevators for cars, all at the tender age of 9. That's what well-off people do, right? What I didn't know was that my parents were living in debt and that includes credit card debts.

Fast forward into my teenage years, my parents got separated, we don't have our weekly spa trips anymore and the house is gone. Sounds tragic?

When my mom finally decided that it was time to stop making excuses and pay off her debts, it didn't take long before she stopped seeing minuses. Now in the present, we have a modest house that was bought and we can actually afford to keep and my mom still drives a 14-year-old car while I don't have my own. But we're now richer than we seemingly were before. We're now debt-free.

A lady who holds a Louis Vuitton and is RM3'000 in debt.
Or a lady who holds a Rootote and has no debt.
Who's the richer person here?

It wouldn't matter if you have all the material things to show the world when you don't actually have the money to pay for them.

27 comments:

Kahani said...

Well written dear! I use credit cards as a means not to carry around so much cash. Truth is I never spend on a credit card what I don't actually have in cash in the bank RIGHT NOW.

plue said...

i only got a debit card, but it isn't the same as having a credit card right?

i have been living on cash terms, just like my dad. and with my mom working in a bank, i hear stories of credit card killing people, break up a family or forced ppl to take loan from some illegal places :)

and really, credit card is borrowed money! when u are used to having it, oh dear, it's hard to stop!

Connie De Alwis said...

Kahani: Thank you! I believe that's the correct perception that people should have towards credit cards. It's for convenience and safety!

Plue: It's smart to live on cash for as long as you can! Debit card has Visa too nowadays but it's money that you already have so that's of course a lot wiser than going on credit.

Frond said...

never ever pay only minimum sums due. Once you do that, you're opening yourself up to being charged interest on every single transaction you've done on your credit card that hasn't been paid. Including the stuff from the last statement! I worked in a bank and many times had to explain that concept to customers.

The best and only way to use credit cards is to ALWAYS pay in full when you get the statement. NEVER be late or the interest charges will kick in as well.

thank you for a timely reminder especially with the Christmas season coming up.

xin said...

very well said connie! i don't spend the money unless i know i can pay it off before they can earn any overdue interest on me. i guess a lot of people really don't realize the fact that CC is borrowed money, and it rolls like a snowball.

Connie De Alwis said...

Fonda: Good to have financial experience backing up the suggestions! I've seen that paying full make a lot of difference. Those who constantly pay the minimum almost never completely clear their debt.

Xin: Thanks! Snowball is very good analogy. Many people just go crazy with a credit card. Too impulsive

chloe said...

Thanks for sharing!
I'm not well-discipline enough to control my expanses, so I rather choose for not owning a credit card.
Now i feel happier if compared to others in debt though they seem materially fulfilled.

Connie De Alwis said...

Chloe: Welcome! It very good that you're aware of your level of self-control. Many people who don't, apply for credit cards anyway getting themselves into a lot of trouble. Having material things would not matter much anymore when you have to starve yourself to pay off debts

Isabel said...

Wow, impressive post, Connie. I'm not old enough for a credit card yet but I have one from my dad (to pump petrol). I used to spend alot (for a student) but now I've become more stingy and I don't buy expensive items (pasar malam, drugstore & budget buying only!). I think the only thing I would actually spend more on is food LOL

However, I'm more worried of when I start working and you know that feeling you get.. Wow.. So much money every month. It's just hard to resist. They were even promoting debit cards in my college and I believe owning one could lead to CC as well.

Connie De Alwis said...

Isabel: It's good enough that you're not splurging on your dad's card! Well, here's to hoping that sensibility will grow with age. If you have a mature enough mind, you will start thinking of your future (buying your own home, car installment, wedding, family, etc.) and be more careful with your spending. At that point, with all the money you earn, a large portion will go to liabilities and expenses that your parents can longer help you with. So, don't worry about it too much yet! It's not wrong to splurge once in awhile but only if you have extra to spare and have no other obligations. Good luck!
Note: Many college students make the mistake of abusing a credit card or even student loan because they think that they'd be able to pay everything back when they start working. never a good reason!

Charming Vanity said...

Great post! It's so hard resisting the urge of using future money to buy things especially when there's a sales going on.

xx

eliza said...

thank you for the advise~!
my mom was an accountant and she keep stressing the bad side of credit card.

But its tempting since quite a number of friends have them. they just....swipe~!

Connie De Alwis said...

Charming Vanity: That's where self-control comes in! I won't call it future money. Borrowed money is not future money. If anything were to happen and you don't have that future money, you not only have zero money, you'd have negative money.

Eliza: Welcome! Good that you have a wise mom to remind you of the consequences. Oh, it's easy to swipe and sign. Looks like free money. Well, unless you have someone to clear your debts for you, money that you don't own should not be spent easily. The time will come when you have to pay.

Eli said...

Great post! My credit card is reserved for emergencies when I travel, not for impulse purchases. Otherwise, I spend cash and only after I put money aside in my savings.

Julia said...

Hi there Connie,

I'm a 21 year old soon stepping into the working world.

Thanks so much for the advice.

It'll do a lot of help for me when the time comes.

:D

Jenn said...

This is a great article Connie!! Its true - plastic cash can kill! Never spend what you don't have. Also, you brought up a very good point - people who live the high live arent always the richest! I have a friend who's willing to starve literally just to buy branded goods! Thats too crazy!

I'm always very careful to never live on credit though i definitely am guilty of impulsive purchases every now and then! =X What i do is I set a fixed amount (considered expense off) as savings, and the rest are "spending" money. Still i'll be careful not to spend everything! Need to have buffer for those "accidents" mah! :P

Connie De Alwis said...

Eli: Thanks! And you have great money sense, Eli! I admit to impulse purchases occasionally but nothing big that I can't pay for.

Julia: You're welcome and good luck!

Jenn: Thank you! That's awful! Some people would blame their habits on society but I think it's due to insecurity that they have. I can't afford branded goods now. I'll have time for them later in life!

I think life has a way to balance everything out. when you take money for granted and spend without thinking, you're bound to be hit by something big that's gonna take you aback financially. Even when I don't spend, that happens and I'd be thinking, thank goodness I didn't spend that extra money or I'd be having a pretty hard time now.

Anonymous said...

Sugar

this post was like, psychic. i just started work and just got my card today.

and the thing is, i want a card because, i HATE making bulk money purchases. what i mean is, for example if i buy a 550 portable dvd player, i dont want to pay 550 in cash because i may need the liquidity.

so i'd rather pay 550 by CC first, then the nxt month i pay 250, then after that 250.

the interest is 1%, so i'd incur 25 cents.

i have way, way, WAY more than 550 in my bank account, but i just really dont like making purchases that cost more than rm400 by cash.

whats ur advice?

Connie De Alwis said...

Sugar: I can understand where you're coming from. Just like how I'd rather pay an installment for my computer instead of paying in full even if it means that there's a slight interest. My reasoning is the same as yours. I may need liquidity. RM2k is my entire savings and if I come up with that, I won't have anything to live on. If I save up, it'll take too long and I there are opportunity costs. However, I'm certain that I can make enough every month to ultimately pay for my computer. If in the end, you're still able to pay off what you owe and the interest is not much of an issue, it's completely fine to do what you're doing.
The problem however, lies with people who ultimately can't pay. People who buy everything on installment from say Courts Mammoth thinking that it's just a small amount every month. They're depending on "future" money because they can't actually afford all they've bought in the present moment. So what happens is every month they strive to pay off their debts which accumulate because they have the "installment" mentality. And if in the future, anything were to happen that requires coming up with a large sum of money, where are they gonna get the money to pay their debts then? They can't earn anymore that they already do and that's when they'll start thinking of side business, selling off stuff, etc. just so that they can clear their debt.

Wendy said...

Great great great advice!

Just one note though: in some countries (Australia and US in my personal experience), it's not a good idea to live a cash-only life because the lack of a credit history can impede your life as much as a bad credit history. You will definitely have trouble getting a home loan (or getting good rates). Even some things as trivial as renting a car, getting a phone plan or having the gas connected in your home (true story!) can require a credit card or a credit history.

My solution is to get a credit card but avoid using it for general shopping. Use it to pay regular bills and pay it off in full every month.

Anyway, great article and great blog!

Connie De Alwis said...

Wendy: Thank you for sharing! I understand how having a credit history would be important. Personally, I wouldn't choose to live off cash though it's entirely possible in Malaysia. If a person has control over her spending, it's perfectly normal to own a credit card.

Indulgent Diva said...

Very, very well written post! The plastic can definitely be a killer! Very timely post actually. I a currently working on finishing up the spending I've accumulated on the spending from my wedding, but I've been using cash for my purchases since then so the balance is well on their way towards the clear now! So yay!!! :)

toughcookie said...

i agree that this is a well-written post. it is a sickness, i think, when one has a credit card especially when you know you're working and getting a lump sum 'payment' at the end of the month which is sufficient enough to pay off any expenses you incur on your credit card.

when i was working, i used to pay up my cards in full every month. but now that i am earning very much lesser and 'smarter' in my spending, i realised that a credit card made me spend so much more (even though within limits) than i should simply because i don't need to have cash in my wallet and because i know i could afford to buy those things. i mean, if i didn't have a credit card and didn't have enough cash in my wallet, i am so sure that i wouldn't even make the purchase because it is so cumbersome having to withdraw money at an atm.

now that i'm a WAHM, i realised that i am richer than when i was working due to the fact that i'd usually keep my credit card at home due to my being paranoia... i didn't have much savings then because of my spending tendencies and i do now because i need to get by monthly without depending too much on my husband. i guess in some cases if you know you'd be tempted to buy much more than you should, just keep that credit card at home and bring in just enough cash for that intended purchase. that way, one won't over-spend.

Anonymous said...

Sugar

great advice, thanks Connie! i may be older than you but i know zilch abt credit cards, since i've just gotten my first last friday, but this really is a good post and great answer!

Addy said...

Great to see posts like this around! :) I always pay up my credit card bills in full, every month, because I hate owing money to the bank. In fact, just yesterday, I paid off my CC bill for October 2010, haha. That means what I've put on my CC for October 2010 so far I have paid off. And it feels GOOD. Now, for the rest of the month I'm gonna try NOT to use my CC! But for the record, I've only got one CC (which is enough for me), and I've got savings in my bank for sure. I never pay for things I know I cannot afford!

Oh, yeah, I must add that I agree with someone who said that in the US a person needs to have good credit history. It's crazy, when I think about it, the financial "culture" there. I'm glad I don't live there!

Anonymous said...

Thanks Connie for posting this! I watched a documentary about this in news last year. Every bank is linked to one another, they can monitor cardholders got another card from another bank. It was scary, since then I don’t even dream or think of having one. When I think of it there is nothing money saving about it, my workmates always dream of having one and when the card arrives it’s like they won a jackpot.lol

G said...

yes, banks in malaysia can access to a centralize system to check credit history or whether you're blacklisted.

credit card is a replacement of cash but NOT a extension of your cash.

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