This is Money

Considering a credit card? Think about this

by STEPHEN ONYEKWELU

November 10, 2017 | 12:35 am
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It was a particularly stressful month financially for Musa and Ebele who have been married for three years, recently moved to Aguda, Surelere, 30 and 27 years old respectively. They had their first baby barely a month after moving into their new apartment, where they paid N550, 000 for a year. Musa works for a commercial bank as customer relationship officer and Ebele works for a manufacturing company as chief operations officer.

Their family budget was strained because they spent over N500, 000 refitting and furnishing the new apartment, then a new baby came along. They were cash trapped and had no egg nests to fall back on. It was during this month that Ebele got a call from her account’s officer pitching the benefits of credit cards. Ebele was not sure she needed one but with the backdrop of their current budget deficits and the need to take care of the newly born she was really enticed and sought advice to help her make an informed decision.

“With a credit card you are never cash trapped. You get 50 percent of your monthly salary loaded onto it and you never have to borrow from anyone. You simply spend and pay later. The interest rate is only 2.5 percent” a bank worker explained to Ebele.

According to people familiar with the matter, credit card is one of the most misunderstood and divisive products among all the financial tools available. Most Nigerians are not knowledgeable regarding the workings of a credit card. In more advanced economies you are sure to find people who pay all their expenses using credit cards as well as others who swear the products are the embodiment of pure evil. Opinions among financial experts and thought leaders are just as mixed.

A credit card is nothing but a tool. Whether its effects are helpful or harmful depends on the skills and knowledge of the user, a person with the power to choose how to use the tool. Here is everything you need to know in order to make the most out of this particular financial tool, taking advantage of its benefits without falling into any traps. Here are some of the common traps for dealing with credit card rewards. These insights were influenced by a Forbes article.

Credit cards are not for everyone. Like tools, in the wrong hands, they can be dangerous. If you have personality traits like a tendency to lack self-control, if you are in the process of repairing your finances, or if you are not ready for personal responsibility, avoid credit cards until you are mentally and emotionally prepared.

What is a credit card?

Physically, a modern credit card is a rectangular piece of plastic, graphite, or a metallic alloy, that identifies a financial account. All contain a magnetic strip on the back, and some contain a Radio Frequency Identification (RFID) chip. An account number and the owner’s name or business name may be imprinted on the front.

Behind the scenes, the credit card represents a type of financial account. By using credit cards, customers can offers a bank’s money instead of their own to pay for a product or service today, and over time, they repay the bank. For the benefit of using someone else’s money, customers will often need to pay interest, as expected with other types of loans. This is where problems can arise. Using other people’s money is often preferable than using your own because it lets you keep your own money available for other purposes, but if you buy something with someone else’s money while not being able to repay that type of loan, the results can destroy your own financial future.

Credit cards are like Digital Video Recorders (DVRs) for money. Digital video recorders allow users to “time-shift.” Television channels, at least for now, have regular schedules during which they air programs, but if you’re not free at 8:00 PM to watch The Big Bang Theory, your DVR allows you to watch the program from the beginning at your convenience.

STEPHEN ONYEKWELU


by STEPHEN ONYEKWELU

November 10, 2017 | 12:35 am
  |     |     |   Start Conversation

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