EXORBITANT interest rates on credit cards have been cited as the main reason people won't get one. Despite the widespread use of credit cards globally, many Jamaican consumers remain cautious about embracing this financial tool, primarily due to the looming spectre of high interest charges.
In response to a question posted on the Jamaica Observer's social media accounts that asked, "What is your greatest fear when it comes to using credit cards?" The responses showed that the biggest fear about credit cards is the interest rate. User Kandiileena commented, "Cannot handle the interest rate, and I don't trust myself." Another user, neka.hill.14, commented, "I don't want it because I hate debt and I'll just spend like I'm mad." The responses gathered also reflected that people don't trust themselves to not overspend, and running up a bill they can't ever repay is their driving fear.
"Always know your financial limitations. To avoid the risk of overspending, you set a target for yourself, a limit to avoid any financial pitfall," said Financial Solutions Adviser Ian Belcher while speaking with the Jamaica Observer.
At first glance, for those who view credit cards as a loan facility, the interest rate associated with credit cards is intimidating. Forty or 50 per cent interest can seem like an expensive facility, but the interest rate can be avoided entirely by paying early or multiple times a month. Financial experts advise that the best way is to get your balance to $0 by the end of the billing cycle every month. "The minimum balance is just a percentage of the overall balance that you are required to pay; however, the rest of the balance will carry forward if you don't pay it off. Paying the minimum balance does not waive the interest rate attached to the remaining balance, the only time there is no interest is if you pay it in full," Belcher emphasised.
Renae Jones, a card issuing and solutions manager, stresses the importance of budgeting and financial planning alongside credit card use to avoid debt and improve financial health. The fear of overspending can be reduced if a different approach to the use of the card is considered. "We all have day-to-day expenses; everybody has expenses, everybody has utilities to pay, everybody has groceries to purchase. What cardholders can do is put those day-to-day expenses that they would have had anyway without the credit card on the credit card, and when it comes to your payment due date, you ensure that you use those funds that you would have had instead of using it and purchasing those items from the cash. You use your credit card to pay for those items and put back that cash on your credit card. What happens is you won't incur interest because you're paying your bill in full, and what you've gained, you're gaining rewards," Jones told the Sunday Finance.
The rewards of a credit card are one of the most attractive features of owning one. Many people avoid credit cards because they have a debit card, but there are perks of using a card that rewards you while you spend versus a debit card with no returns for spending. Various credit cards offer various rewards like travel points and one of the most popular benefits is cash back, earning money while you spend money.
"For each purchase you make, you get back a per cent of the amount you spend, which goes back to the credit card, which you can reuse or help in terms of paying against your bills. Some of them have travel points, meaning for every USD you spend, you can get a travel mile with travel points you can then redeem towards an airline ticket. Some, depending on where you use it, can offer you a discount on purchases," Belcher shared.
Along with rewards, owning a credit card can also help to improve one's credit score, enabling that person to be in a better position for other loans. "When they [credit card holders] go for another loan, say an unsecured loan, a car loan, or a mortgage, the bank will have a history of their repayment in the past, so it gives them a higher credit rate and a higher credit score," Belcher added.
Aside from rewards, there are two other things people look at to determine which card is best suited for them, the annual fee and the interest rate. Generally, cards that carry lower interest rates are geared towards business owners, they usually carry higher annual fees but offer more benefits and rewards. At the time of this article, banks with no annual fees attached to personal or standard credit cards is First Global Bank, which offers a first-time credit card called a "starter card" It carries no annual fees, cash advance charge at ATMs is at 8 per cent, interest rate of 35 per cent, and 50 per cent for cash advances. CIBC First Caribbean's Visa silver credit card also has no annual fee. The interest rate for cash advances on that card at the automated teller machine (ATM) is 7.34 per cent, 47 per cent for purchases and 50 per cent interest on cash advance repayments. Last is Scotiabank's Visa Classic credit card, which has no annual fee for the first year and none ever if purchases amount to an average of at least $30,000 monthly. The interest rate is between 49.99 per cent and 51.99 per cent. The con with these cards, however, is that they offer no rewards.
The credit card offering the lowest interest rate on the market is Sagicor's Mastercard standard credit card, with interest rates of 12.50 per cent for secured purchases, 14 per cent for secured cash advances, 50 per cent for unsecured purchases, and 51 per cent for unsecured cash advances. The annual fee for this credit card is $5133.05. The credit card with the lowest annual fee on the market is JN Bank's Visa Classic credit card, with an annual fee of $3,212.07 and an interest rate of 45 per cent.
But a credit card will not be for everyone, and there are important questions to ask yourself before getting one, such as how cash-intensive are your daily transactions? "Am I able to manage my budget in a way and stick to the timeline in terms of when the amount is due? If you're the type of person who knows you use cash regularly and you're in need of cash regularly, then the credit card is not for you because what you will end up doing is withdrawing cash from your credit, and when you do that, it's like the worst thing you can ever do because interest rates for a cash advance are very high," Jones warned.
For individuals who don't trust themselves to own a credit card, the best financial option for you is to stay away from one. "A person who is responsible enough with their finances" is who Belcher stated should get a credit card. However, he explained that another option could be an unsecured loan, depending on the need of the transaction, for example, paying school fees or doing construction on a large scale for a home improvement, as the interest rates on these are much lower. "If you are not in a situation to pay off the entire balance on a monthly basis, maybe the credit card is not the best option available to you at that time, depending on the size of the need at that time," said Belcher.
The fear of credit cards among Jamaicans, however, can largely be attributed to banks' perceived lack of effort in providing sufficient education about their usage. While banks will occasionally send out information on social media about fraud protection, little is publicly shared about credit cards. Many banks opt to share information directly with their current customers via e-mail; however, no information for potential cardholders about how their specific cards work is available publicly. Some banks make finding information on fees associated with credit cards almost impossible or not at all on their website, which can also deter people from getting a credit card.
"Part of the problem in Jamaica is that financial education is not something that is at the top of the list. Financial education should go as far back as in the schools, learning about things like credit cards should be taught in schools as a subject so they can know how to manage these things as they get older," said Belcher. "More can be done and I think the market is gearing towards that," Jones said.