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Things to consider when getting a credit card

Claudja
Williams

Wednesday, October 04, 2017

A credit card can be good or bad depending on how you use it, and more importantly, can be a very important tool if you ever have a financial emergency. The following are some benefits of having a credit card:

1. It helps to build credit history - This is especially important for young professionals without considerable assets. Having a credit card can help to demonstrate good character with regard to credit and a willingness to repay debt. This information is taken into account when a financial institution considers you for a loan.

2. Credit cards carry rewards - Thanks to considerable competition in the local financial sector, credit cards generally carry one or more reward packages to entice consumers to indulge. If you have good money management skills, you will be able to reap the maximum rewards while paying minimum interest in return.

3. Safety and protection - Having a credit card is better than having cash. While Jamaica is still largely a cash-driven society, carrying cash is generally risky mostly because it leaves you open to robbery without recourse. If your credit card is stolen or fraudulently used in any way, the bank will replace your card and you may not be liable for any fraudulent charges made to your card.

4. Convenience - A credit card allows you to carry out your transactions remotely/electronically, ie you can pay your bills and make purchases from the comfort of your home or office. Electronic transactions such as bill payments are usually less expensive than face-to-face payments, and are in some cases free.

5. Cash flow support - A credit card is a convenient way to offset any cash flow shortfall you may have in a particular month. Be careful though, because a credit card should not be offsetting cash flow shortfalls every month. If you find that you are spending more than you make, then you need to revisit your budget and cut your expenses.

Disadvantages include:

1. High interest rates - Locally, credit cards can typically carry interest rates as high as 50 per cent.

2. High penalty fees - Credit cards carry high penalties for late and short payments. Be sure to make at least the minimum payment every month on or before the due date.

3. Uncontrollable limits - If you are a good customer/or if you have a high enough income, banks will sometimes gratuitously increase your credit limit. This is only good if there is a corresponding increase in your income and you have not taken on any additional expenses that could impair your ability to repay your credit card debt.

4. Temptation - Having a credit card can cause you to spend more on leisure items or activities than you normally would.

 

Claudja Williams works as a consumer advocate to the financial sector. The views expressed are her own.