What i am going to write about today is actually applicable to pretty much anyone, anywhere. I am sure that most of you carry one or two or even three or more credit cards in your wallets. What is the scheme behind these cards? Why does it put a financial burden on us when we are unable to pay it back?
I got thinking about this because i recently received an SMS from EmiratesNBD Bank credit cards that there was a huge sale in Dubai World Trade center for EmiratesNBD bank card holders where you could avail of more than 50% discounts on top designer name brands. This not the first time i have received this kind of SMS with regards to the banks offering their card holders as special discount etc. The idea behind this is, you buy that stuff, put it on your card and then default on the payment, which automatically puts on an interest rate on your payment plan.
I have a friend, who has racked up about 100,000 dirhams on credit cards (about 5 of them) and now he is unable to pay them back to the bank, so now what does he do? The banks keep on calling him on a daily basis, threatening him to put him behind bars if he doesn't pay up. Where does a human being simply find the money to pay what he just can't pay because there are no means or sources for that person?
This is one case out of the many people that i have met in my life who have a huge credit card debt and they are simply unable to pay them back. The rules in Dubai are such that you might end up in jail for not paying your debts to the bank, which is about 3 or 4 months, to a maximum of 6 months. Lodging a case in the civil court costs the bank a lot of money, and wastes a lot of time for their lawyers. They then employee credit collectors, who pressure the person to pay the debts and they also make under valued settlements with the customer so say you have a 10,000 dirham credit card debt, they will ask you to pay 6,000 and finish off the case because the banks really don't want to waste the time or the money on starting a court proceeding for a meager amount of 10,000 dirhams.
Just a few months back there was a story in Express about two children in Dubai (in their teens) pleading for help, what has happened is sad. The parents have racked up an amount in millions on their credit cards, they have given the whole family's passport into the labor court as a guarantee, the parents are in jail, and the kids are living illegally in Dubai, unable to attend school nor are they able to leave the country as they don't have proper documentation. Why do these kids have to suffer the punishment of what their parents have done. The parents have made the mistake, and unfortunately the kids are paying the price.
The biggest danger of credit card debt is that the interest rates that are charged on credit cards is extremely high. This is a problem for a few reasons most notably because it is very expensive. However it can also get you into trouble because the amount that you owe can grow very quickly. This makes it very easy to find yourself in a position where you are unable to keep up with your payments and your debt is growing faster than your ability to pay it off. When this happens you are in serious financial trouble.
One danger of credit card debt that a lot of people are starting to recognize is that it makes it nearly impossible to save any money. There are a lot of people who are unable to save for retirement because of all the money that they owe to the credit card companies. Even worse are the people who think that have saved for retirement but really haven't. It is all well and good to have a large sum of money in your retirement account but if you also owe a lot to the credit card companies then the money really isn't yours.
Perhaps the biggest danger of credit card debt is simply the fact that it allows you to spend money that you can't afford. It is no secret that a lot of people have trouble sticking to a budget. This becomes a real problem when you combine it with how easy it is to borrow money with a credit card. This allows people to spend money that they can't afford and allows them to avoid having to budget their money. Of course it will all blow up in your face eventually since you do have to be able to pay the money back. Being able to make the minimum payment on your credit cards is not nearly enough.
Here i am sitting writing about all of this, maybe giving some sound advise, but i know for a fact that it's easier said than done. In today's day and age, most of the buying happens via the internet, which might require a credit card. Not a whole lot of companies accept debit cards online. So then the question is, should i really be getting a credit card? Yes. You need it. In this day and age, you defiantly need it. But you need to have control over yourself which is difficult. Payment on these cards, once defaulted, becomes a HUGE liability on the person.
I have been through this process of having a credit card, spending much more than what my salary was, one fine day they increase the limit without asking me, and i am happy that i can spend more, have another trip to the bar... the bill comes, and oh! crap! i am unable to pay. what do i do now? no worries, let's get another credit card to pay this credit card, because the new credit card charges me only 1.5% interest but the first one charges me 3% for minimum payment. And now i have the new card, oh we can pay the old card later, i really need this TV, i can put it on my new card. That's how the story starts of a second credit card being maxed out and the interest payment begins. Now i am stuck with two maxed out credit cards with no means to pay it back. I am merely paying the minimum payment on both. Trust me, completely avoid this situation. Been there, done that, and never again.
Today i have one card, and yes i have an amount to pay, but its nothing i can't afford not to payoff with my next salary payment. Once you have cleared your debts on the card, keep the card only for emergencies and ofcourse your airline ticket payments or hotel rooms payments for your next vacation, but just make sure that you pay off all of that before its too late... just remember, the interest is compounded, month on month, the principle amount will keep on increasing.
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